Agency Week 1 Class Notes PDF

**[Indicia of partnership and s24 (FOR EXAM)]** **[What is Agency?]** "A person who has authority to act for and on behalf of another (called the principal) in contracting legal relations with third parties; and the agent representing the principal creates, alters, or discharges legal obligations...

**[Indicia of partnership and s24 (FOR EXAM)]** **[What is Agency?]** "A person who has authority to act for and on behalf of another (called the principal) in contracting legal relations with third parties; and the agent representing the principal creates, alters, or discharges legal obligations of a contractual nature between the latter and third parties". "The word "agency", used in a legal context, refers to **a relationship usually created by contract**, in terms of which **the principal** instructs **the agent** to act on his behalf in order to produce legally binding effects for the principal." - One person (the agent) transacts on behalf of another person (principal) - The person doing the act/transaction is the agent - The person on whose behalf the transaction is being done is the principal - The agent's acts are attributed to the principal - This means that it is as though the Principal did the act themselves **[Visual Representation of Agency]** A group of people in different poses Description automatically generated \- Charlie and Kevin have a Principal - Agent Relationship \- Kevin facilitates a transaction with Cynthia. However Kevin and Cynthia should have no contractual relationship unless something goes wrong! \- Charlie is the one that is in a legal contractual relationship with Cynthia - The agent is responsible for making the contract between the principal and the third party but the agent is not a party to that contract (unless something goes wrong). - The agent has a separate contract with principal (contract of agency). **[Example]** You need a new phone, but you don't have time to go to the store. You appoint an agent, Lee, to go to the store on your behalf and purchase the phone for you. What happens when Lee purchases the phone from the store? - Relationship of the three parties: - the principal (you), - the agent (Lee) and - the third party (the retailer) - Relationship between the principal (you) and the third party (retailer) - which the agent facilitates (Lee) - A relationship between the Principal (you) and the Agent (Lee) - which set the parameters for the agent's duties and authority (to buy the phone) - There should be no legal relations between the agent and the third party, unless something goes wrong. If something goes wrong then the agent may find themselves liable to the Principal, the third party or both **[What can agents do?]** - Contract on behalf of the principal - Sign documents - Juridical acts - Transfer property - Bring action in a court of law, appeal - Make and accept payments **[Why have agents?]** - Practical and efficient - Special knowledge or expertise - Geographical restrictions/benefits - foreign transactions - Companies need agents to act **[What do you think?]** - Cashier at a store - A products buyer for Marks and Spencer - Solicitor/Attorney - Travel booking agent - Warehouse operative **[How do we know what an agent can and cannot do?]** This is determined by the contract and/or the agents' authority (acting on behalf). It does not have to be both. This is because sometimes agents are appointed with no contract so there will be no contract that specifies what the agent can and cannot do **[Capacity]** Does a principal have to have capacity? - Agent will act to facilitate legal relations between the principal and the third party - To be bound in contract the principal must have contractual capacity - You cannot bypass the need for capacity by employing an agent Does the Agent have to have capacity? - It is not necessary for an agent to have active capacity since they facilitate the transaction - The Agent merely facilitates and is NOT a party - Whether the agent has capacity or not does not change this - **Scots law** does not require the agent to have contractual capacity in order to act as an agent. - **In England**, it is accepted that agency may arise from a unilateral conferral of authority by the principal - P Watts and F M B Reynolds, Bowstead and Reynolds on Agency (19th edn, 2010) para 1-006. (it does not really require acceptance; it recognises that the agent does not necessarily need capacity; you don't know whether they have the capacity or not) (complexity of this, defining agent duties can be hard, if you have principal declaring you are acting as agent, but you are not) - This is problematic when defining the agent's duties as technically the agent does not really provide consent - ASK ABOUT THIS **[Types of agents]** - **Universal agents** -- unlimited authority -- authorised to conduct transaction on behalf of principal of all kinds -- e.g. general power of attorney - **General agents** - has broad authority to act on behalf of the principal in a wide range of activities - **Limited agent/ad hoc** -- engaged as an agent for a specific task - **del credere agent** -- agent acts as guarantor of third party solvency **[Type of principles]** There is only one type, but when the agent deals on their behalf they may: - Disclose they are an agent and who the principal is - **disclosed principal** - Disclose that they are an agent but not say who the principal is - **unidentified principal** - Or not disclose that they are an agent working for the principal - **undisclosed principal** **[Is agency only regulated by Common Law]** - Agency Law is regulated by both Common Law and legislation. The legislation applies to Commercial Agents only - Commercial Agents (Council Directive) Regulations 1993. - In both English and Scots Law we tend to distinguish between what we classify as commercial agents and non commercial agents. **[Why do we have legislation for commercial ]** 1\. In Scots and English law, agency law focuses on governing the relationship between principal and agent, with the aim of protecting the principal. From the late 20th Century European legislation focussed more on protecting the rights of commercial agents 2\. This was legislated in the UK under the Commercial Agents (Council Directive) Regulations 1993 SI 1993/3053 3\. Later when we look at the rights of an agent, such as the right to remuneration, notice of termination etc you will see they fall under these regulations 4\. This focuses on protecting agents' interests for the business they grow for their principals **[The regulations]** - only relevant to commercial agents - took effect from 1 January 1994 - apply to all activities of commercial agents taking place in GB - Some regulations can be excluded others are mandatory - Commercial Agent defined in regulation 2(1) - the agent must be - \(a) **self-employed** - \(b) have **continuing authority** to **negotiate** the sale or purchase of goods on behalf of the principal - \(c) not be excluded by the regulation. continuing authority **[Continuing authority ]** - Excludes one-off transactions - All transaction can be resulting from from a single contract - Includes agents who are authorised to negotiate and conclude contracts - *Not a one off transaction, relationship over time, and it can stem from one contract and must be ongoing. If one off its not really commercial agent. Agent has the continuing authority to negotiate on principal behalf* **[Negotiate]** []Read broadly, they have to have the ability to do it - *Parks v Esso Petroleum Co Ltd where* Morritt LJ relied on the *Oxford English Dictionary* meaning of "negotiate" - *PJ Pipe & Valve Co Ltd v Audco India - whether the agent actually participates in discussions on price or commercial terms* - Read the term negotiate broadly as having some say in the terms of the bargain between principal and third party or bring goodwill /business as per Nigel Fryer Joinery Services Ltd v Ian Firth Hardware Ltd \[2008\] EWHC 767 (Ch) **[Who isn't covered by the regs?]** - An agent who does not negotiate - no effort on part of agent - Common exclusions include an officer of a company, partners, insolvency practitioner, unpaid commercial agent, agents acting on commodity exchanges/commodity market, Crown Agents for Overseas Governments and Administrations, gratuitous agents - E.g - Parks v Esso Petroleum Co Ltd \[2000\] ECC 45 - a licensee who operated a petrol station on behalf of an oil company - persons whose activity as a commercial agent is secondary - Reg 2(3)-(4) **[Secondary?]** *Primary and secondary activity, primary (agent), secondary (not commercial agent), if they fall out the definition they are protected by common law and they have less protection as an agent* *English law, what are non agency acitivites nad compare to acitivites the agent does, see agency activities and non agency activites, if bulk is strong agent activities they are primary, if the actions lean towards small seconadary they will be considered not a commercial agent* *In Scots law, they don't agree with English, the way its interpreted is that we look at what the understanding was when the agent was hired, and what did both parties understand, were activities primary or secondary, where English is looking at the range of activities and is this commercial, in scots looking at what was agreed on* - Scottish v English courts interpret this differently - The question is what do we balance the agent's role against to determine whether the agent's role as an agent is secondary and not the primary role? - **English cases (look at it all and see which they have more of)** - should be compared with the other non-agency activities the agent may have with a principal. - The Department of Trade and Industry - should be compared with the agent's non-agency activities. - **Scottish case (look at intention)**- *Gailey v Environmental Waste Controls* as per Lord Drummond Young - gave a wide meaning to "secondary", rejecting the English view (English scholar consider this incorrect) - Scottish courts - should be determined based on the purpose of the agency arrangement **[Secondary in the regulations]** - Paragraph 2 of the Schedule sets out when the commercial agent's activity will be primary (such as purchase and sale of goods) *if agent is able to negotiate terms of deal, if part of communication of deal they are seen as primary, if they pick up the goods they are secondary* - Paragraph 3 lists indicators that the agent's activity is primary (where the principal is in imports/exports, manufacturing) *does the same as imports and exports as para 2, if part of terms how things will be anufactured, or representing what happens this is primary, if a conduit not part of those they will be secondary* - Paragraph 4 lists indicators suggesting the agent's activity is secondary (principal deal with customers directly, or customer place direct orders) *if principle deals with third party directly the agents activites will be secondary* - Paragraph 5 sets out absolute exclusions (catalogue agents) **[So who is right?]** - There is no right answer here - As per Lord Drummond Young in *Gailey* - Member States have complete discretion on the definition of "secondary" - Many agree that where the agency is helping to build goodwill and bring business matters this is indicative of being primary  steps to consider when problem questions **[Forming agency relationships (setting up agency relationships the options)]** 1\. Express 2.Implied 3.Holding out 5\. RAtification 4\. Agent of necessity doctrine of negotorium gesto 5\. operation of law - EXPRESS - clearly appointed - go buy this for me - IMPLIED - by circumstances or actions - Pete can take care of this - HOLDING OUT - Here the principal gives the agent the appearance of being their agent (they hold them out as being their agent) and its is the principal who makes it look this way to the third party -- example: *yu work at a store selling tractors, and your gf bf comes in and super cold windy day nad left jacket at home and you pull out sweater with brand on and you go deliver tracttr to farm and see gf bf in sweater with name of store, gf bf decides they are going to sell tractor in your absence, they sell a 10,000 fo 5000 tractor, the customer is still there and you say they do not have authority to do this, the customer says how as supposed to know this that this person is not agent of company, you've held out to be an agent, you have put them in the position of making appear they have authority* - AGENT OF NECESSITY(something happening emergency and requires someone to be agent) (England)/ (eg China Pacific SA v Food Corp of India (The Winson) 1982 AC 939 -- property at imminent risk)/DOCTRINE OF NEGOTORIUM GESTIO (Scotland) - RATIFICATION - retrospective approval of an agent's act by the principal (retrospective approval of someones actions) (ratified your ctions) - OPERATION OF LAW - the law states that partners are agents of each other, or that directors are agents of a company (we will look at this later in the semester) **[Forming agency relationships under the commercial agents regulations]** For commercial agent to whom the The Commercial Agents (Council Directive) Regulations 1993 apply, as per Reg 13 - *The commercial agent and principal shall each be entitled to receive from the other, on request, a signed written document setting out the terms of the agency contract including any terms subsequently agreed* *-protecting the agent* **[Agent of Necessity (England) / Doctrine of negotorium gestio (Scotland)]** Arises when there is the need to safeguard the property or interest of another and allows one person to bind another without the authority of that other/benevolent administration of another person\'s affairs without that person\'s authorisation. (dealing with flooded house example of neighbour) **[English Agent of necessity ]** - Arises when there is the need to safeguard the property or interest of another *(someone must say come watch things, if it's a car you have to be somehow connected to this say on university property car park)* - Allows one person to bind another without the authority of that other in order to protect their interest or property - So the courts deem the person as an agent acting to safeguard the interests of the principal - This may increase the authority an agent already has or may create an agency relationship - Here whether the parties intend for an agency relationship to arise is irrelevant Test: - Actions of the agent must be necessary for the benefit of the principal. (if not for principal agent will become liable) The test is an objective one, meaning that it does not matter whether the agent honestly believed that his actions were necessary---what matters is whether a reasonable person would regard the action taken as necessary - Tetley & Co v British Trade Corp (1922) 10 LI L Rep 678 (KB) - It is not reasonably practicable for the agent to communicate with the principal. - The agents actions were reasonable and prudent and that the agent acted in bonafide interest of the principal (*reasonable and prudent, not the most expensive carpet going in not reasonable, but if they are gone for a long time and change of carpet this is reasonable, checking that it is for the principals best interest)* - The principal was competent at the time of the agent's act (principal must have compacity) **[Example]** You are traveling in a mountain region with no phone reception. You own a cottage in the country that you run as an Airbnb. You ask your neighbour to look after the house in your absence and let them know that guests will be checking into the cottage in two days. While you are away a water pipe bursts. Your neighbour has to hire a plumber to fix the problem. Test: - Actions of the agent must be necessary for the benefit of the principal. The test is an objective one, meaning that it does not matter whether the agent honestly believed that his actions were necessary---what matters is whether a reasonable person would regard the action taken as necessary - Tetley & Co v British Trade Corp (1922) 10 LI L Rep 678 (KB) - It is not reasonably practicable for the agent to communicate with the principal. - The agents actions were reasonable and prudent and that the agent acted in bonafide interest of the principal - The principal was competent at the time of the agent's act **[Scotland - doctrine of negotorium gestio]** That is to say, the benevolent administration of another person\'s affairs without that person\'s authorisation, in circumstances where the person is unable to manage his own affairs by reason, for example, of absence or incapacity. In such circumstances, the gestor is entitled to be reimbursed for the expense which he has properly incurred, even if it has not ultimately proved to be beneficial, and to be relieved of all liabilities (Bell, Principles of the Law of Scotland, Tenth Edition, paragraph 541)." *Wishart v. Castelcroft Securities and Others \[2009 CSIH 65\] \[58\]* - Borrowed from Roman Law and is not a Anglo common law concept - A person (*negotiorum gestor*) who usefully and benevolently intervenes in the affairs of another (*dominus negotii*) (element 1 and 2, (1) interfere/manage another's (2) affairs/transactions) - Who is absent or incapable at the time of the intervention (element 3) - With the intention to benefit the dominos (element 4) Then the gesture (agent) but will be entitled to be relieved of liabilities and expenses. **[Ratification (in terms of how does agency exist in the first place)]** - Ratification happens when an agent has acted outside of their, or without, authority, but the principal approves the act retrospectively. (*technically breached, but principal retrospectively approves)* - You own a clothing shop. You ask your assistant to travel to Italy on your behalf (as your agent) and buy 20 dresses for your store. While there, your assistant sees 10 very nice handbags and buys those too. Your assistant (the agent) does not have the authority to buy the handbags, only the dresses. But when your assistant arrives back you see the handbags and love them so you decide to ratify (effectively retrospectively sign off) on the transaction and become bound in contract for the handbags. 1. Must be clear 2. Time of act and time of ratifying for capacity 3. 3 4. Has to be situation where agent is acting for the principal 5. Principal to make an informed deicison and know what they are agreeing to 6.. 7. - The authority determines what an agent can and cannot do - An agent must have authority before they can form a binding contract between principal and third party - The principal is bound by agent's acts which fall within the scope of the agent's authority - BUT are not bound by acts which fall outside of agent's authority -- some exceptions (ratification, holding out) - Actual (express or implied) - Agent of Necessity - Ratification (retrospective authority) - Apparent (ostensible) authority - This is the authority an agent actually does have - Actual authority is a legal relationship created by consensual agreement -- Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd \[1964\] 2 QB 480 - Authority is conferred expressly by the principal - Does not need to be in writing and need not take any particular form - Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd \[1964\] 2 QB 480at 502 per Diplock LJ. - Here the agent does actually have authority - But instead of being given expressly it is implied - Authority may not clearly be given in words or in writing but has otherwise been implied through circumstances - Case Law will help us determine what is classified as implied - (not expressly told, can be implied through actions, particular situation, through continuous dealings implied through that) - (something agent has to do to carry out agency agreement) The authority is necessary to carry out the object of the agency agreement - Agent has the powers needed to carry out what they have expressly been authorised to do. So, a sales agent has the power to take orders as well as the power to make sales. *Barry, Ostlere & Shepherd Ltd v Edinburgh Cork Importing Co* 1909 SC 1113 - The authority is incidental to the agency agreement - it is customary in the trade in question/Implied from the post the agent holds, e.g. a solicitor - The authority is necessary to carry out the object of the agency agreement - An architect was impliedly authorised to instruct a surveyor to carry out measurements needed to complete commission. Black v Cornelius (1879) 6 R 581 - The authority is incidental to the agency agreement - go to Italy buy dresses - need to ship them back - It is customary in the trade in question/Implied from the post the agent holds, e.g. a solicitor - A solicitor has implied authority to instruct a property search for a principal wishing to buy a house...Fearn v Gordon & Craig (1893) 20 R 352 (but not to conclude the contract - Danish Dairy Co v Gillespie 1922 SC 656) **[Apparent/ostensible authority ]** - Where the principal has done something which leads the third party to believe the agent has authority - even when the agent doesn't have authority, the principal is the one responsible for the agent appearing to have authority, or the misunderstanding, so the principal becomes bound by the agents actions. The principal must actually have the authority to go through with the act. - *Most complicated, this si type of unauthorised agent that becomes an agent based on appearances, looking like they have authority, that person will essentially get authority, based on the appearance they have it. That appearance has to come from a legitimate source, for ex if I sent youto buy car and said someone is coming in to buy car for me; if you came with a logo on shirt appears you are representing the principal or company etc...someone must give you that authority* **[In simple terms ]** - Agent appears to have authority even when they don't - The 3rd party forms a contract with the agent on that basis - The appearance of having authority is usually created by the principal (these three things basically make the authority) - The act has to fall within the authority the agent is represented as having - The belief that the agent had apparent authority in the circumstances must have been reasonable(to protect third parties) (you have to believe this as the third party) - *Example say you have ana agent and they work with military and sent to buy tanks and planes etc...they go to a manufacturer and they see amazing hot air balloon and want to buy this, as the third party selling planes and tanks, chances are yes they have authority to buy planes and tanks not a hot air balloooon, not reasonable for third party to believe they can buy hot air balloon, must be reasonable on behalf of the third party* - e.g. planes and tanks but probably not hot air balloons - This means that a 3rd party cannot claim apparent authority if the 3rd party knows/was aware of the agent's lack of authority - To protect third parties **[In legalese]** - Deals with the **relationship between the principal and the third party** - When a **principal represents that an agent has authority** to contract on the principal's behalf, the **principal will be bound** by the acts of the agent that fall within that represented authority - How authority appears to others - Protects third parties who contract/engage with an agent based on the appearance of being an agent or having authority - The belief must arise from something the principal has done - the basis on which the 3rd party believes that agent has authority to do a particular act on behalf of the principal - The third party has to rely on this impression given by the principal in order for the principal to be bound - *Key Point: Belief has to be reasonable and come from what the principal has done to make them look like they have authority* **[Example]** Luis works at B2, a telecommunications company. He works in one of their stores. He has just started and is in training. He wears the company uniform and a name tag. Luis' supervisor, Ajay, tells him that his only role while he is in training is to observe and learn. He is not to sell anything or make any deals. (The authority) The next day Juliana walks into the store. It is lunch time and Luis is all alone in the store. Ajay is out at lunch and his co-worker Bill went home early. Juliana wants to buy an iPhone 14 on a plan. She inquires with Luis. Luis seems to know quite a bit about the plans and phones. Juliana eventually buys the iPhone with a plan of £10 a month giving her unlimited calls and texts as well as unlimited data both in the UK and in Europe. Juliana is very pleased and goes home with her purchase. The next day she receives a phone call from Ajay who tells her that she will have to come into the store and select a new plan as her contract is not valid. Answer **[The test -- Freeman & Lockyer v Buckhurst Park Properties Ltd \[1964\] 2 QB 480:]** \- (*Freeman & Lockyer* was approved by Scottish courts in *Dornier GmbH v Cannon* 1991 SC 310) 1\. A representation must have been made that the agent had the authority to act minimal action is required by Principal as per International Sponge Importers Ltd v Andrew Watt & Sons 1911 SC (HL) 57 : in Scots law the term 'inconsistent conduct' used more than 'representation'. 2\. The representation must have been made by someone who had the authority to act (the principal usually) 3\. The third party must have relied on this representation in being induced into dealing/contract and it must have been reasonable to rely on this representation 4\. The agent must have acted within the represented authority **[Example]** Luis works at B2 a telecommunications company. He works in one of their stores. He has just started and is in training. He wears the company uniform and a name tag. Luis supervisor Ajay tells him that his only role while he is in training is to observe and learn. He is not to sell anything or make any deals. (The authority) The next day Juliana walks into the store. It is lunch time and Luis is all alone in the store. Ajay is out at lunch and his co-worker Bill went home with a bad stomach. Juliana wants to buy an iPhone 14 on a plan. She inquires with Luis. Luis seems to know quite a bit about the plans and phones. Juliana eventually buys the iPhone with a plan of \$10 a month giving her unlimited calls and text as well as unlimited data both in the UK and in Europe. Juliana is very pleased and goes home with her purchase. The next day, she receives a phone call from Ajay who tells her that she will have to come into the store and select a new plan as her contract is not valid Answer A screenshot of a phone Description automatically generated **[Example 2]** Jim used to work for Abby's Pub. He was recently fired for drinking on the job and flirting with the customers. When Jim was working at Abby's he used to serve drinks and also order the liquor. Jim isn't taking his dismissal well and decides he would like revenge on Abby. He goes to meet JJ who is Abby's liquor supplier and orders a large quantity of liquor in her name for a huge party he is throwing next week. Since firing Jim, Abby has been shorthanded and too busy to call her suppliers and let them know that Jim no longer works for her. When Abby received the bill from JJ she is furious and refuses to pay for it. Jim's number is now disconnected and JJ insists that Abby will have to pay for the liquor. **Applying the test - Freeman & Lockyer:** 1\. A representation must have been made that the agent had the authority to act Jim is represented as being the liquor buyer for Abby's pub 2\. The representation must have been made by someone who had the authority to act (the principal usually) Abby made this representation to JJ 3\. The third party must have relied on this representation in being induced into dealing/contract and it must have been reasonable to rely on this rep JJ relied on the representation that Jim is Abby's liquor buyer, acted on this representation and it was reasonable to do so 4\. The agent must have acted within the represented authority authority Jim is represented as being able to buy liquor for the pub and he acted within this represented authority **[Cases Example]** Generally, the apparent authority must come from the Principal, not from the agent themselves → *Armagas v Mundogas SA* \[1986\] AC 717: House of Lords Judgment BUT then... First Energy (UK) v Hungarian International Bank \[1993\] 2 Lloyd's Rep 194 - A company was negotiating a loan with a bank employee - The bank employee did not have the authority to grant the loan - The bank employee purported to contact his superiors to get authorisation - He told the company's representatives that he had authority from his supervisors to grant the loan when he did not (he had not contacted his supervisors) - The loan was agreed - The Court of Appeal held that the bank was bound by the loan agreement, although the employee did not have authority to grant the loan, he was in a position and did have the authority to make representations on behalf of the bank - Which led the third party to believe that the employee had the authority to grant the loan **[Apparent Authority ]**  **[To summarise:]** - It can be difficult for a third party to determine whether someone who seems to be an agent actually is and whether someone who seems to have authority actually does - The law here protects the third party - The principal will be liable where they have represented the agent to have authority, and the 3rd party has relied on the representation - Unless the 3rd party should have known, or it was not reasonable to rely When might this arise? - Confusion about the extent of an agent's authority (when the third party wants to enforce the contract, not when the principal is trying to enforce as they would ratify it) (third party focus on enforcing contract, go to apparent authority at the front of mind) - An agent no longer has the authority to do something but may have in the past - When a person holds a particular position, such person will have as part of the apparent authority all the usual authority of a person occupying that position (e.g. a director of a company) This is a non-exhaustive list of examples **[So what do we call it when an agent acts without authority? (when something goes wrong)]** We call this a **Breach of Warranty of Authority (agent giving you third party that they have a warranty to act, if they don't they are breaching that warranty, when this happen agent will be personally liable)**. Basically the agent warrants that he is authorised by the principal and if he is not, then he has breached that warranty. **[Breach of Warranty of Authority (strict liability thing)]** - Essentially providing a warranty that you have the authority to do this act or transaction - So if you don't have the authority to do the act/transaction you are breaching the warranty you have given - Strict liability - it is irrelevant whether the agent believed they had the authority - The agent becomes liable to the third party - The agent is liable for the benefit the third party would have received as per Irving v Burns 1915 SC 260 at 269 (Lord Salvesen); Halifax Life Ltd v DLA Piper Scotland LLP \[2009\] CSOH 74 - This means the agent is personally bound unless it was not reasonable to rely on the representation of authority **[Agents exceed their authority ]** 1. Ratification: the principal ratifies the contract; 2. Third party could raise an action **[against the principal]** on the grounds of **[apparent authority]**; no contract but right to damages 3. Third party could raise an action **[against the agent]** for breach of **[warranty of authority]** **[WEEK 2:]** **[Principal and agent liability to third parties:]** 1. We looked at authority, actual express, actual implied and apparent/ostensible authority 2. If an agent acts within their authority they are facilitating the contract/transaction and only the principal and third party are parties to the contract, so only the principal and third party can become liable under the contract 3. If the agent acts outside of their authority - this breaches their warranty of authority and they can become liable unless the principal can bring a claim against the agent or the 3rd party can bring a claim against the principal for apparent authority This does get more complicated depending on whether the Principal is disclosed or not. Remember from our first class when an agent goes out to do a transaction on behalf of a principal they will either: - Disclose they are an agent and who the principal is - disclosed principal - Disclose that they are an agent but not say who the principal is - unidentified principal - Not disclose that they are an agent working for the principal - undisclosed principal - (third party going to be able to hold liability different in each scenario) **[Agent acts for a Disclosed and Named Principal]** - Most straightforward scenario - Discloses they are acting as agent (e.g. signing and adding → 'as agent for and on behalf of...') and - The identity of the principal The rule here will be that a contract is entered into between the principal and the third party, and the agent incurs no liability for that contract. When principal is disclosed the contract is deemed to be that of the principal unless (looking at where agent will be liable not principal in this scenario): - Agent contracts outside of authority (breach of warranty of authority) (unless apparent authority applies) - Agent agrees to be liable - Usage or custom makes the agent liable - Agent contracts in their own name - Where the principal is non-existent -- agent personally contracts - Where the agent has not made it sufficiently clear that they are contracting on behalf of the principal - (In these situations the agent must make it clear they are the agent and are just facilitating and the principal and third party have contract and nothing to do eith agent) **[Examples when there is evidence to the contrary that indicates the agent might be liable ]** - It may be the custom of a trade that liability is entered into by the agent - e.g. stockbrokers deal with each other as principals even though they are acting in a representative capacity on behalf of a client as per *Maffet v Stewart* (1887) 14 R. 506 (agent ends up with liability) - Solicitors are another example -- customs of the profession - *Stirling Park & Co v Digby Brown*: A firm of solicitors, consulted by a client wishing to recover a judgment debt, instructed sheriff officers to serve a charge for payment and carry out a poinding. Held, that the evidence was sufficient to demonstrate that the practice of solicitors accepting personal liability for sheriff officers\' fees was so certain, uniform, notorious and reasonable as to give rise to an obligation that was contractually binding upon solicitors... **[Written contracts]** - In a written contract, there is a rebuttable presumption that the party who signs the contract intends to accept personal liability under it (parole evidence rule conract law) - The agent has the onus to rebut the presumption - This is a strong presumption, difficult to rebut - When the agent signs in their own name and do not qualify their position properly, they may be liable even if: - the third party was aware that they were acting as agent; - the terms of the contract indicated that the signatory acted as agent; (has to be on behalf of company not just their title) - even adding 'Director' after the signature may not be sufficient to rebut the presumption: → Brebner v Henderson, 1925 S.C. 643 - NB: unincorporated associations with no legal capacity cannot employ agents: remember that the principal must have legal capacity. - Case example: Stewart v Shannessy (1900) 2 F 1288: A sales manager sent a letter on company headed notepaper confirming the appointment of a sub-agent, which he signed using his personal signature. Held that he was personally liable. **[Unnamed but disclosed principals ]** - Here the third party knows you are acting as an agent but does not know who the principal is - The question is who will be liable, the principal or the agent? - This depends on whether the agent has made clear to the third party that he will not be personally liable for the contract - Traditionally there has been the option where the third party can pursue the principal or the agent, and if the agent is pursued, the agent would be indemnified by the principal A white background with black text Description automatically generated **[Approach One]** To treat the situation in the same way as an undisclosed principal would be treated: which is to give the third party a choice as to whether it wants to hold the agent or the principal liable under the contract as per Ferrier v Dods (1865) 3 M 561. (most likely agent they will go after as they know who they are) **[Approach two:]** - Ask whose credit the 3rd party relied on when making the contract - That person will be the one who is liable for the contract - In *Ruddy v Marco* the court stressed that it was the responsibility of the agent to make clear to the third party that the principal is the one who is liable - The 3rd party, knowing that there is a principal, is not sufficient here to discharge this burden - So if the agent makes it clear that the P will be liable then then P will be liable - But if this is not sufficiently clarified, the presumption stands that the person who signed the contract, being the agent, is liable **[Approach 2 examples:]** e.g. execution of documents by an agent. Just because the 3rd party knows there is a principal in the background is not enough to establish that the agent won't be liable. In order for the agent not to be liable, the signature would need to be qualified in such a way to make it clear that the the document is signed on behalf of the principal as per Stewart v Shannessy (1900) 2 F 1288. e.g. Credit or financial reputation relied upon (elected) by third party determines who (the agent or the principal) is bound as per Lamont Nisbett & Co. V Hamilton 1907 SC 628 where they held that insurance brokers could not recover payment of insurance premiums from the principal after the agents went bankrupt. This second approach recently received Inner House approval so it should be followed in the future. **[What about for an undisclosed principal (third party doesn't know they are agent or principal they think they are dealing with someone, so in this situation an agent contracting on behalf the third party can choose agent or principal)]** - Here the third party does not know you are acting as an agent or for whom - Effectively the 3rd party thinks they are dealing with you and may not realise you are acting on behalf of someone else - Who will be liable, the principal or the agent? - ---\> where an agent has contracted on behalf of an undisclosed principal, the third party is entitled to choose whether to enforce its rights against the agent or the principal - Rationale in most transactions - people do not mind if they deal with agent or principal - just that the contract is performed **[Can the Principal enforce the contract against the third party ]** - Yes, after the contract has been concluded, the principal may disclose his or her existence and can then bring an action against the 3rd party as per Bennet v Inveresk Paper Co (1891) 18 R 975 - The law allows a principal who has not been disclosed to enforce the contract made on her behalf by an agent, even where the agent acted in his own name as per Si Yin Kwan v Eastern Insurance Co Ltd \[1994\] 2 AC 199 - Principal can do so where the agent had authority to act and intended to do so on behalf of the principal **[Can the third party enforce the contract against the agent or the principal]** - The third party is entitled to choose whether to enforce its rights against the agent or the principal - The agent risks that the third party will have the view that they have contracted with the agent and will hold the agent liable under the contract - The agent would then be indemnified by the principal (or reimbursed) - The third party could alternatively choose to sue the principal rather than the agent once the principal is disclosed - Remember the undisclosed principal can only be liable if the agent was in fact his/her agent at the time - (undisclosed principal liable to agent only if they were acting within wauthority) **[Choosing between the principal and the agent (choose principal or agent not both)]** - Choice need not be made expressly, implied by conduct is sufficient (such as pursuing an action for enforcement of the contract to the point of judgment, or ranking in an insolvency procedure as per Meier & Co v Kuchenmeister (1881) 8 R 642; David Logan and Son Ltd v Schuldt). - They must choose to pursue one or the other. - Once the choice is made it is final as per Said v Butt \[1920\] 3 KB 497. \- The agent and the principal are not jointly and severally liable, it is alternative as per Meir & Co v Kuchenmeister (1881) 8 R 642, per Lord Young at 646 **[So then how does the agent become liable]** - The 3rd party chooses to enforce the contract against the agent - but the agent should be indemnified if the agent has acted within their authority - If an agent exceeds their actual authority and if the principal does not ratify the agent's acts then the agent is personally liable - For breach of warranty of authority: agent warrants that the agent has authority as per Anderson v Croall & Sons (1903) 6 F 153 **[So then how does the principal become liable ]** - Through the agent contracting on the principal's behalf and the 3rd party electing to hold the principal liable - When the 3rd party holds the agent liable the principal must indemnify the agent if they acted within their authority **[Can a third party put limitations when dealing so as not to be in the situation of dealing with an undisclosed principal ]** - The 3rd party can stipulate that it is only willing to conclude the relevant transaction with the agent personally. - This rebuts the argument that the 3rd party is indifferent to who performs the contract - Even without stipulation, if the contract is a 'personal' one, where the person to whom the performance is due is a central part of the obligation, an undisclosed principal can step in and enforce it. - E.g. painting a picture - see E.g. Siu Yin Kwan at 210, - E.g. personal services (such as bathing or dressing) - E.g. Nanny **[Additional notes]** If an agent is used for deceit of the 3rd party then the principal may not enforce the contract. E.g. Said v Butt \[1920\] 3 KB 497 P not welcomed in theatre so hires A to buy tickets. Held that theatre owners could refuse P entry **[Problem solving, apparent authority and principal disclosure ]** It can be very difficult to bring an action for apparent authority when the principal has not been disclosed. Why? (dealing with undisclosed P third party does not know , how does 3^rd^ party hold someone liable, and how did you know agent had authority) **[The Test: Freeman v Lockyer v Buckhurts Park Properties Ltd \[1964\] 2 QB 480: (apparent authority)]** **[Problem solving, apparent authority and principal disclosure ]** - Notice that the test requires a representation that the agent has authority to act - This representation has to have been made by someone who does actually have the authority to make the transaction - So the representation has to have been made to the third party by the principal - Can you satisfy this requirement when you don't know who the principal is, or when you don't know that there is a principal? - So it is very difficult to bring an action for apparent authority in those circumstances. **[Example]** You work for a company called Bubble Pink. Bubble Pink sells pink bubblegum flavored ice cream. Your job is to go to different suppliers and source dairy for production. You are told you are to source 500 litres of cream. Last Tuesday you visiting MooDairy, a dairy farm. You negotiate a contract for 800 litres of cream, instead of 500 because the deal is just so good. Bubble Pink produces in small batches and hasn't the capacity or clientele to utilise 800 litres of cream before it expires. They refuse to pay for the additional 300 litres. **[Immediately we already known the following]** - We are an agent for Bubble Pink - Our authority allows us to contract for 500 litres of cream - We made a contract for 800 litres of cream which we do not have the actual express authority for or actual implied authority for - Bubble Pink refuses to pay for the additional cream - Who is going to want to enforce the contract - MooDairy and will try to argue apparent authority **[Discuss the outcome ]** 1. You arrive at MooDairy driving a Bubble Pink van, wearing a Bubble Pink branded t-shirt. Your name tag says buying manager and your name 2. You arrive at MooDairy, you let the owner know that you are an agent purchasing the cream for your principal. You are not driving or wearing any Bubble Pink branded items and do not let MooDairy known who you are buying the cream for 3. You come to MooDairy and make a contract for the 800 litres of cream and do not say you are an agent  -what then happens for disclosed and unnamed and not disclosed?? **[What duties to agents owe their principals ]** **[Common law or statute?]** It is important here to consider both Common Law and The Regulations for Commercial Agents (this is where the Act starts to become important for commercial agents) **[What kind of relationship is a principal -- agency relationship]** - ^Principals\ and\ agents\ owe\ duties\ to\ one\ another^ - ^These\ duties\ can\ be\ in\ accordance\ with\ an\ agreement^ - ^But\ are\ fiduciary\ in\ nature^ - ^Trust\ and\ loyalty^ - ^Common\ Law\ duties\ and\ rights\ (some\ mirrored\ in\ the\ legislation)^ The fiduciary relationship is one of trust and dependence. The principal trusts the fiduciary implicitly, and depends upon him in such a way that he is entitled to expect that his best interests will be protected and that the fiduciary will not make any profit on the transaction in question without his fully informed consent." Parks of Hamilton (Holdings) Ltd v Campbell \[2014\] CSIH 36; 2014 S.C. 726, per Lady Dorrian at \[26\] A close-up of a document Description automatically generated **[How do we determine the parameters of an agent's duties]** - Depends on the extent of the authority an agent has (that is why its so important to find out what the agent can/cannot do) - All agents owe fiduciary duties (whether by common law or legislation) - But an agent may have so little authority that extensive fiduciary duties would not apply, (for very limited tasks such as letter writing) as per Prince Arthur Ikpechukwu Eze v Conway \[2019\] EWCA Civ 88, per Asplin LJ at \[39\]--\[40\]. **[Commercial agents and fiduciary duties ]** - Commercial Agents (Council Directive) Regulations 1993 (mirrored in here for fiduciary duties) - duty to look after the interests of the principal and act dutifully and in good faith - reg.3(1) - three particular aspects of the duty to act in good faith are detailed in the Regulations, but this is a non exhaustive list: - make proper efforts to negotiate and, where appropriate, conclude the transactions he is instructed to take care of -reg.3(2)(a). - communicate to his principal all the necessary information available to him - reg.3(2)(b) - comply with all reasonable instructions given by his principal - reg.3(2)(c). **[Duty to follow principals instructions ]** - CL duty to follow principal's instructions as per the contract (or youll be acting outside of the authority, principal has to give instructions to the agent, if it is not clear enough the agent will not be liable, or if it is they will be) - Principal has obligation to ensure the instructions are clear - If instructions lack clarity the agent will not become liable for resulting losses - As per Ireland v Livingston (1872) L.R. 5 H.L. 395 - Commercial Agents (Council Directive) Regulations 1993 - duty to comply with reasonable instructions given by \[the\] principal - reg.3(2)(c). - agent becomes liable if does not follow instructions - liable for resulting losses and per Gilmour v Clark (1853) 15 D. 478; Wright v Baird (1868) 6 S.L.R. 95; Bank of Scotland v Dominion Bank (Toronto) (1891) 18 R. (H.L.) 21 **[What happens if there is no instructions ]** The agent may still have to comply with duties which are usual in the particular trade but that depends on the industry the agent is employed in as per Bell, Commentaries, I, 517 **[Duty to avoid conflicts of interest]** - Avoid conflict of interests between the agent and the principal - the agent should put the principal's interests first - COI e.g. self-dealing - General rule avoid conflict of interest, but if they are very transparent it can potentially be okay **[Duty to not make a secret profit ]** - he agent is under a duty not to enter into any transactions which would allow the agent to make a profit at the principal's expense - Cunningham v Lee (1874) 2 R. 83, per Lord Ardmillan at 89 - The agent must account to the principal for all benefits receive (duty to account) - This applies to money received in the course of the agency business - Money received by the agent in the course of their own dealings or other dealings do not need to be accounted for - Examples: secret commission, bribes, undisclosed self dealing, other money exceeding the agent's agreed remuneration from the principal -Trans Barvil Agencies (UK) Ltd v John S Baird & Co Ltd, 1988 S.C. 222, per Lord McCluskey at 231. **[Does this stop the agent from working for 2 Principals ]** The duty is said not to be wide enough to stop an agent working for two principals. A "non-competition" clause cannot be implied into the agency contract and instead would require express terms in the agency contract as per Lothian v Jenolite Ltd, 1969 S.C. 111 - There are many illustrations of this rule in the context of solicitor/client relationships. - Where a solicitor arranges the sale of property belonging to his client but fails to disclose that the solicitor himself is the buyer, then this would constitute a breach of the duty - Cleland v Morrison (1878) 6 R. 156 - McPherson's Trustees v Watt (1877) 5 R. (H.L.) 9 - solicitor failed to inform client that he was the buyer (acting through another) - Onus is on the agent - Solicitor acted for the client -- trustees - Unknown to the trustees, the solicitor proposed to buy two of the houses himself and arranged for the remaining two to be sold to his brother - Lord Blackburn explained the conflict of interest as follows: "The mere fact that the agent was in circumstances which made it his duty to give his client advice puts him in such a position that, being the purchaser himself, he cannot give disinterested advice---his own interests coming in contact with his client's, that mere fact authorises the client to set aside the contract if he chooses so to do." **[What is the solicitor had disclosed their interest ]** (if making profit and disclosed principal can approve -- as long as agent is truthful and transparent and principal is okay with this than that's fine; but there is an exception, a solicitor hired for advice and they say I have a CoI, the problem is that the CoI is also going to ruin their advice to you...this can impact the advice they give you and you cannot approve this, as this is their fundamental duty) (don't want to interrupt the advice that would be given to you) - Even when the agent obtains the principal's agreement, the agent may still be in breach of his/her duty - So, for example - if the solicitor discloses his/her interests and obtains the client's agreement to his role as a buyer, the solicitor is no longer providing the principal with independent advice - This does depend on the circumstances - Can do so after agent-principal relationship has ended as per Connolly v Brown \[2006\] CSOH 187; 2007 S.L.T. 778 (Scottish) - If the agent was instructed to buy goods from a third party on the principal's behalf, but himself sells good to the principal as a seller, keeping his identity as seller secret, this too constitutes a breach of fiduciary duty. - Whether the breach of fiduciary duty lies in secretly selling to or buying from the principal, the principal may choose to rescind the contract and claim from the agent any profit which the agent made through the transaction. **[Full disclosure to the principal]** - Duty to make a full disclosure of all the facts of the transaction to the principal - Parks of Hamilton (Holdings) Ltd v Campbell \[2014\] CSIH 36; 2014 S.C. 726 - Profits, relations, interests etc - Burden is high (if not reaching this, than this will be a breach of fiduciary duty) - Going "well beyond anything that is required in an ordinary contractual relationship" - as per Parks of Hamilton - If breaches duty the agent should forfeit commission/remuneration to the principal as per Graham & Co Ltd v United Turkey Red, 1922 S.L.T. 533 (Scots); HPOR Servicos De Consultoria Ltd v Dryships Inc \[2018\] EWHC 3451 (Comm) (English) - The principal can consent to the agent making a profit, agree to go through when the agent has an interest or connection - The transaction is still valid as long as the agent discloses - Otherwise voidable not void **[Confidentiality ]** - The agent is under a duty not to disclose or make use of any confidential information concerning the principal - which has been obtained during the course of agency or dealing as an agent - as per Liverpool Victoria Legal Friendly Society v Houston (1900) 3 F. 42 - Agent of society not able to give list of names and addresses of members to rival society for pecuniary gain **[Duty to communicate benefits to the principal ]** - the agent is obliged to pass on any benefits which he receives to the principal - unless these form part of the remuneration which was agreed between agent and principal **[Duty to account]** - (i.e. inform) the principal of all benefits received in the course of agency activities - Trans Barwil Agencies (UK) Ltd v John S Braid & Co Ltd 1988 SC 222 - the agent must keep accounts - need not be written as per Russell v Cleland (1885) 23 S.L.R - the relationship between the agent and the principal may indicate that a verbal accounting only is required **[Problem example]** Kerisha owns an ice-cream making store in Dundee and is about to open two more stores, one in Aberdeen and the other in Edinburgh. She is very busy with her new expansion and so has asked Drew, her assistant manager, to find a new cream supplier as the local dairy she has been using until now has limited capacity. Kerisha has instructed Drew to source a local dairy with high quality cream as she is passionate about supporting her local industries. Drew approaches four different dairy farms: - Fife Dairy - Agnus Dairy - Blue Heather Dairy Farm - Blue on Blue Dairy - Fife Dairy is a local co-op which offers a very competitive price - Agnus Dairy is a small local dairy farm, with a number of awards for the quality of their dairy. The dairy farm does belong to Drew's grandmother. - Blue Heather Dairy farm is a medium sized local dairy. Their dairy products are well known for being high quality. Blue Heather have themselves recently expanded and Drew is a shareholder. - Blue on Blue have offered Drew a 2% share in the profits made from sales to Kerisha's Ice Cream. Drew would have to disclose the interests he has in those last three companies to be transparent Fife good option/no conflicts Angus, must disclose Blue hearther, conflict of interest, and secret profit must be disclosed, this could potentially be using information Blue on blue, a secret profit **[What happens if the agent is dealing for two different principal's and both are involved in the transaction or for multiple principals at the same time ?]** (a real estate agent solicitor, an agent for different prnicpals with multiple transactions, in this you can argue conflict of interest, if principal doesn't want them to deal with someone else they can put that in the contract but this is not a restrictions naturally) **[Dealing for two different principal's in the same transaction]** - Representing multiple principals could present a conflict of interest - Especially when products are in competition - It can be difficult to work for both principals without interest conflicting as the agent has to promote both products - Often agent's contract will prevent him/her from representing competing principals as per Graham & Co v United Turkey Red Co Ltd 1922 SC 533. - This is not always the case, solicitors/realty agents selling multiple houses in the same area is a common example - so no principle that says an agent cannot act for competing principals as per Lothian v Jenolite Ltd 1969 SC 111 - to the advantage of all of the principals because potential customers or buyers may be more likely to visit or listen to an agent who has a wide range of potential deals to offer them **[Use of property/information obtained while an agent]** - Duty not to misuse the property or information which the agent has because he is an agent - Boardman v Phipps \[1965\] Ch 992. - E.g. you work representing Bill in a real estate transaction. Bill is making an offer on a piece of land for development. You realise that the land is a bargain and so gather a group of friends and make an offer as well. - As well as having a conflict of interest you are using information you acquired on the job. - Drew works for Kerisha as the assistant manager of her ice-cream chain. Outside of his working hours Drew has developed a side business producing high quality cheese. His business is quite successful. (client list, suppliers recipes, where he oversteps creates conflict of interest this is where it is not okay, but in this example it is not a conflict) **[What happens if the Principal ratifies the agent's act, but still wants compensation for breach of authority? (even if principal ratifies, they can still seek compensation from agent)]** **[Why would an agent ratify an act but still want compensation? (if you have principal and agent ratified agents action)]** **[Ratifying But Still Wanting Compensation ]** - There may be commercial reasons such as reputation - Principal is making the best of the situation -- but this does not necessarily bar recovery from the agent - So the principal can ratify without waiving the right to seek compensation from the agent for breaching their authority - In order to maintain this right, the principal must make this clear at the time of ratification **[Duty to Use Reasonable Care and Skill (fundamental fiduciary duty)]** - Agent is bound to exercise skill, care and diligence in the performance of duties as is reasonably necessary for the carrying out of duties or as appropriate for the profession in which the agent is employed - *Cooke v Falconers Representatives* (1850) 13 D 157 - If the agent fails to do so -- the agent may become liable for resulting loss suffered - Level expected: 'The skill of a prudent man in managing his own affairs' (Bell's Commentaries) **[Duty not to Delegate]** [ ] (duty not to delegate because principal hires agent they expect that agent to do the work for them or a company, a duty on the agent to not delegate duties to other people) - Agent has a duty not to delegate - Wide range of exceptions - Based on contract law -- hired for special skills, so performance by another is excluded - Leaves open the option when no skill is needed - Principal can expressly stipulate in the contract that the agent is not to delegate Exception to the duty not to delegate: (one big exception being that if you need someone with a. special skill and acting on behalf of principal and you don't have this you can delegate e.g. solicitor selling house, they cannot survey the property, do the repairs..they can delegate enough to do what is reasonable. Custom trade is also an exception for what is custom in that trade to delegate   - 'exigencies of business do from time to time render necessary the carrying out of the instructions of the principal by a person other than the agent originally instructed for the purpose...' - *De Bussche v Alt* (1878) 8 Ch D 286, per Thesiger L.J. - Lots of exception! - Custom of the trade - where agent has to undertake a task outside their expertise - implied power to delegate so agency contract can be performed - solicitor in a different area -- Robertson v Foulds (1860) 22 D. 714 **[Other duties]** - Keep property of principal as would do with own property - To keep the principal's money separate from own - To keep all accounts for dealings on behalf of the principal separate from own accounts - To have accounts ready for inspection by the principal - To hand over all money/documents relating to the principal's affairs (subject to the agent's right of lien) - To preserve confidentiality in all matters **[Duties of the Principal Under the Regulation (regulation to protect agent)]** - Reg 4(1) - a principal must act dutifully and in good faith - Reg 4(2) - (a) must provide his commercial agent with the necessary documentation - Reg 4(2) - (b) must obtain the information necessary for the performance of the agency contract and notify the agent if the volume of transactions will be significantly lower than expected - Reg 3 -- The principal must inform the agent within a reasonable time of acceptance or refusal of commercial transactions that the agent has procured **[Duty both parties have]** - Reg 5(1) - The parties may not derogate from regulations 3 and 4 above - Reg 5(2) - The law applicable to the contract shall govern the consequence of breach of the rights and obligations under regulations 3 and 4 above. - (this is different then common law, the regulations apply)(under common law freedom of contract, under regulation you cannot put that type of term in, only go to common law when the regulation does not apply -- this is for commercial agent under the regulation) **[Difference from CL]** - Cannot exclude these obligations under Reg 5(1) and the agent is entitled to a signed, written document setting out the terms of the contract Reg 13 - but otherwise they add little to the obligations entailed by an agency relationship at common law. **[Rights of agents ]** Right to remuneration - Right to indemnity - Right to reimbursement - Right of lien **[Agents rights ]** - These are mirrored in Regs and CL - Part III and IV Commercial Agents (Council Directive) Regulations 1993 - Agent is entitled to payment (for work he does on the principal's behalf) - how this occurs can be agreed in contract - could be commission or percentage - the agent is entitled to relief from any liabilities - reimbursement of any expenses **[Right to Remuneration]** - Under common law - amount will depend on the contract - Reg. 6(1) default rule -- remuneration is paid to the agent according to what is customary or to reasonable remuneration where there is no custom Under common law: - Usually an express right - If silent on this, rebuttable presumption for remuneration where the work is the agent's livelihood - an agent who is not a professional agent, but brought about a contract of sale was entitled to a commission as the agent's remuneration from the person who used his service - *Thomas Kennedy v Peter Glass* (1890) 17 R 1085 (professional or not is a hard line to define, are they doing this to be paid or gratuitously) - Can be tricky to determine if it was the agent's actions that brought the contract about or the principal and 3rd party would have entered a contract regardless **[Right to Commission]** - Regulation details transactions that give rise to commission and the requirement for information to be passed to the agent to determine the amount of commission -- Regs 7-12 - The commercial agent is entitled to commission for transactions concluded while an agent, or for third parties the agent has previously acquired and now concluded a transaction with for the principal - The agent is entitled to commission for transaction concluded after termination if the order was placed before termination or the transaction is mainly attributable to the agent's work and within a reasonable amount of time -- reg 8 **Continuation of the principal's business** - can this be implied? Not really, but agency contract can be carefully created that this is the interpretation **[Right to indemnity and reimbursement]** - Agent has right to be: - indemnified for losses incurred - indemnified against liabilities incurred - reimbursed for expenses incurred - While carrying out of the principal's instructions **[No right to be indemnified and remuneration ]** The agent has no claim if the agent acted outside the scope of authority or has acted in a way that in negligent or unlawful **[What if an Agent Works for Free?]** - If an agent agrees to work without payment - gratuitous agency (still have right to relief, indemnified and reimbursement) - known as mandate - principal is known as the mandant and the agent as the mandatary - the mandant is still entitled to relief and reimbursement **[What if the principal does not pay after the agent has already done work?]** The Agent can have a lien over the principal's property until expenses/remuneration have been paid. Must be incurred lawfully and with instruction**. (only if agent has acted within authority)** General lien - the agent can retain any goods Special lien - the lien must be over the property which the agent is seeking reimbursement/remuneration for dealing with **[Liability of Agents to the Principal]** An agent may be liable when: the Agent has not followed the principal's instructions, if the agent discloses confidential information or knowledge, if the agent is negligent in their duties. The Agent will be liable for losses suffered by the principal. **[Termination of the Principal -- Agency Relationship]** - Performance or completion - Expiry of the time for the agency contract -- courts will determine a time if not fixed - Purpose of agency agreement has ended - Impossibility of performance - Agreement - Revocation - By Death - By Insanity - Bankruptcy - Renunciation by the agent **[How does the relationship come to an end?]** - May be determined by a fixed term contract (CL) - Reg 14 - If it was a fixed term contract and continues to be performed by both parties even though the period has ended, this will transfer to an agency contract for an indefinite period - For indefinite period contract, notice is required to end the agency - Reg 15 - How much notice is needed depends on how long the agency relationship has existed - Reg 15 tell us of 1 year = 1 month, 2 years = 2 months and anything more than that = 3 months - These rules do not apply where there has been a material breach of contract or in exceptional circumstances (e.g. frustration) - Reg 16 **[Right to Payment]** - The agent is usually entitled to payment even if the agreement has been terminated - This applies even if the agent has died - Exception where the contract is terminated for material breach by the agent, where rights and duties have been transferred to another party or where the agent has terminated the contract (except in the case of illness or age etc) - So excluded from payment if it is agent's fault or choice how does payment occur? - Two options under the regulations: - Indemnity -- reg 17 - Compensation - reg 18 - If no choice in relationship, then compensation applies -- reg 17(2) - Not able to derogate from these rules if the agreement is to the agent's detriment - Cannot exclude the agent's right by contract before termination - But can discharge the right after the contract ends - Aimed to reward agent for building goodwill **[Indemnity (for what has done)]** - Indemnity is calculated based on the extent to which the agent brought new business to the principal (which the principal will continue to benefit from) -- reg 17(3)(a) - Regard given to circumstances including the commission the agent would have had if the agency relationship continued -- reg 17(3)(b) - Amount payable is capped by agent's average remuneration over the last five years or average over the whole agency if less than five years -- reg 17(4) **[Compensation (from losses)(go for compensation unless contract says indemnity)]** - Compensation is calculated in accordance with the damage which the agent suffers as a result of the termination - loss of the opportunity to earn commission - \+ cover costs incurred in the performance of the agency contract - As per reg 17(6)-(7) - Damage is calculated normally -- comparing the agent's position now with what it would have been if the contract continued - *Lonsdale v Howard & Hallam Ltd* \[2007\] UKHL 32, \[2007\] 1 WLR 2055. **[Termination under common law ]** **Revocation by principal:** - Principal can revoke authority - If revoked this does not affect liability incurred during agency relationship - Principal must relieve the agent of losses suffered because the agency agreement was revoked before ongoing transactions could be completed - Remember principal may be liable for actions of agent if notice is not given to third parties -- apparent authority **Revocation by agent:** - The agent may unilaterally revoke the agency contract - Can be liable for any delay in informing the principal or revoking at a critical time **Death of Principal or Agent:**   - Terminates the contract - But the agent's authority does not necessarily terminate immediately - The agent is able to continue in order to finalise transactions that began before the death of the principal - The agent is limited to completing transactions and cannot commence new ones **Frustration:**   - The contract can be frustrated - Both parties are released from performance - But rights created before frustration remain enforceable - Eg. Cessation of the principal's business, impossibility to perform, supervening illegality, liquidation, incapacity of agent/principal **[Bankruptcy ]**   Of Agent - Bankruptcy affects the agent's authority and capacity to contract   Of Principal - Agent can continue to act as necessary on behalf of principal to complete transactions that were already binding on the principal prior to the bankruptcy (principal needs capacity, bankruptcy of principal is more serious than agent as agent does not need capacity at time of contracting) **[Commercial Agents and Agents at Common Law: main differences]** Commercial Agents Agents at Common Law ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- Legislation: Commercial Agents Regulations 1993 General law of agency (common law). NB: continues to apply to commercial agents when not inconsistent with the Regulations Applies only to Principal/Agent relationship (not to agent's external authority/relationship with third parties). Relates to both relationships. Agent needs to be SELF EMPLOYED. Can be sole trader, partnership and corporate body. [Cannot] be an employee. Agent could be an employee The following are NOT commercial agents: Directors and officers of companies or associations; partners in a partnership; insolvency practitioners. A partnership or a company can be a commercial agent. Partners of a partnership, directors of a company, insolvency practitioners etc can be agents If they have powers to conclude contracts, they must do so in the Principal's name. (Distributors who buy in own name for resale not covered). The agent can act for an undisclosed principal Authority to negotiate in relation to sale or purchase of GOODS. Not services. What is a service? Agent can act in relation to goods and services. **[Problem solving example]** When faced with a problem question, one challenge can be to identify the principal, the agent and the third party. Consider the following and identify who acts as a principal, who acts as an agent and who is the third party if asked to give advice to Sporting Dreams Ltd: Mandy Flurry works as a sales agent for Sporting Dreams Ltd, a company that sells sports equipment. Sporting Dreams Ltd has a broad client base and Mandy Flurry has covered the Tayside region for many years. Recently Mandy Flurry has accepted the following orders: An order for 300 tennis balls and three tennis nets from Daniel Slamdevev, assistant coach at Riverside Lawn Tennis Club Ltd. Since accepting this order, a UK-wide shortage of tennis balls has developed. On the back of this, Mandy Flurry sold the balls ordered by Daniel Slamdevev to another regular customer, Selina Villians, trading as Spin & Slice Coaching, for a higher price. Riverside Lawn Tennis Club Ltd (a long-standing customer of Sporting Dreams Ltd) are extremely unhappy as they are soon to host an important regional tournament and need the new balls urgently. Investigations by Mandy Flurry uncovered that at the point of ordering Daniel Slamdevev was only authorised to order nets, not tennis balls. Agent: Mandy flurry, Daniel Slamdevey Principal: Sporting Dreams Ltd, Riverside lawn tennis club Sporting dream: third party view is riverside Riverside: third party is sporting dream Third party: Selina Villans (Spin and slice coaching) agent and principal, spin and slice view the third party is sporting dreams, from Selina making deal with mandy working on their behald and mandy working on sporting dreams 3 diff principals, 3 diff agent, 3 diff third party Sporting goods SelinaMandy Daniel (REVIEW THIS IN AGAIN) **[Revision MCQ 1]** Which of the following is not required for ratification by a principal of a contract made by an agent? (Select the one correct answer).  1. The agent must have had apparent authority at the time the contract was entered into by the agent.  -- (ratification nad apparent authority, you argue one or the other) 2. The principal must have existed at the time the contract was entered into.  3. The principal must have decided to ratify.  4. The agent must purport to act for the principal **[Revision MCQ 2]** Which of the following statements are true and which are false?   1. The agent can be personally liable even where they have not acted outside their authority. True-/False 2. If the principal ratifies the contract, they are relinquishing their right to bring a claim against the agent. True/False-   3. A commercial agent (under the Commercial Agents (Council Directive) Regulations 1993) is always self-employed. True-/False.   4. An agency agreement can be created in writing, orally or implied through the actions of the parties.  True-/False  **[Revision MCQ 3]** Roland Ltd employs Carlos to buy stock for an event merchandising business. Garros Ltd employs Stefanos to sell event merchandising items such as branded clothing and accessories.  In a question as to whether Roland Ltd and Garros Ltd have entered into a binding contract with each other, which statement is a correct statement of how to analyse these facts?   1. In this scenario Carlos is the only agent.   2. In this scenario Carlos is the agent of Roland Ltd and Stefanos is the agent of Garros Ltd. Both Roland Ltd and Garros Ltd are the principal and there is no third party.   3. In this scenario Carlos is the agent of Roland Ltd. From the perspective of Roland Ltd, Roland Ltd are the principal and Garros Ltd are the third party.  - In this scenario Stefanos is the agent of Roland Ltd.  Whether the two companies are bound in a contract with each other will depend on whether Stefanos has authority to communicate that he is authorised to act on behalf of Roland Ltd.  **[Week 3 Business structures]** **Sole proprietorship** **Partnership** **Limited Partnership -- partnership arrangement with the protection of a company** **Corporation** **[What to consider when comparing forms of business organisations ]** - Capital -- do you want the ability to raise money? - Risk involved -- how can personal exposure to liability be reduced? - Organisational structure -- do you want to run the business or do you want someone else to? - Tax - Set up ease and costs - Confidentiality **[Risk Involved]** - What risk is involved for the business? - Who is liable? - How can this be reduced? - creating a separate legal entity with limited liability and separate legal personality - the business is at risk rather than the person **[Organisational structure]** - Who runs the business? - Do they want managers? **[Raising Capital ]** - Need to consider the need for capital - Where is the money coming from? - Can they raise enough capital? - Do they need investors? Will investors want to be liable? - Is a loan/debt a good idea? -- must be repaid, could lose assets if used as security, prevent further investment - Will they want to issue shares to raise capital? If yes, then not sole trader or partnership or limited liability company **[Set up costs ]** - How easy is it to set up the business? - Are there legal requirements? Can they handle them alone? - Are there multiple parties that need to come to an agreement? - How will new people be brought in? **[Confidentiality]** - Do they want information to remain confidential? - Do they need to provide information to investors? **[What is Separate Legal Personality (idea of limited liability, important factor)]** - Business is conducted in the entity's name and not in the owner's name - The assets (home, cars, money) of the owners is not at risk - The entity owns the property, assets and debt Example: Mary runs a restaurant. She creates a company, Eat Ltd. She invests \$100,000. The restaurant is located in a beautiful building on Main Street. A loan was taken in order to expand the restaurant upper floor of the building. The restaurant orders supplies once a week from SupplyFood Ltd. **[What is Limited Liability?]** - Owners are limited in their liability to their investment in the business Example: If a claim was brought by patrons of the restaurant for food poisoning, who will be liable? What if Eat Ltd does not have enough money and assets to cover the claim? Will Mary be liable? **[The Sole Trader]** - One person operation - No legal filing requirements - Capital -- usually from personal savings or loan - Contract in their own name - Personal liability for debts - No distinction between personal and business assets -- person assets at risk - No formal structure needed (as little risk or disagreement) **Advantages/Disadvantages** - Single person business - Need own capital - Unsuitable for larger scale investment - No formal structure required - Risk involved - Control - All assets and profits go to the owner - No set up costs - No regulations - Taxed as an individual based on income bracket - Expansion options are limited **[The partnership ]** Definition of partnership: 'the relationship which subsists between persons carrying on a business in common with a view to profit' -- The Partnership Act 1890 - Very broad definition - Can be established through; oral agreement, written contract, implication by conduct - No formal process to establish a partnership -- if you act like partners, the law will see you as partners **[Some things to know]** - Minimum membership -- 2 partners - Maximum -- unlimited (prior to 2002, it was 20 unless a professional firm) - Assets are owned by the partners - Unless excluded the Partnership Act will apply - Can cause issues for those unaware they are partners - Participate in management - Have an equal share of the profits - Be indemnified for liabilities assumed while doing partnership business - Not be expelled by other partners **[How a Partnership works (disadvantage a intimate relationship, relying on one another, when partner leaves or passes away the partnership comes to and end)(this means that it's a type of business structure that exitsts, one leaves it comes to and end, it means you have to form the partnership again without that person, you can put in a contract it wont come into an end, but without a contract it will come to an end)]** - Will come to an end on the death of a partner - Can modify the Act and draft their own agreement - This allows the partners to change how the partnership works -- management structure, profit sharing, continuation of the partnership - Partners are jointly and severally liable for the debt of the partnership (for partnership, more serious then agency, youre in partnership of 5 people, each partner has joint and several, if one partner does something wrong they all can be liable or any one of the partners)(liable for actions of all partners, if you act like partnership you will be considered under law, the risk of this is joint and several liability) - E.g. a partner takes a client's funds and disappears, all other partners are liable (fully not just in proportion)(look at this video again about this point) **Advantages/Disadvantages:** - Organisational structure is very flexible -- can be easily set up and run according to needs - New partners can join and leave (moment you start acting like partnership, this is not hard to start again, if contract it would have to be reviewed and renewed to start again) - Can divide profits as chosen by partners (or equally) - Partners make decisions without outside influence such as shareholders as needed in company - Private agreement and running of the business (don't need to put reports, of financial earnings of the partners) - Spread of risk (shared, larger than for companies) (there is option of joint liability means spread of risk, if claim, partnership assets shared) - Facilitates investment -- partners can pool funds (raising capital is easier than sole proprietorship, for example group of 3 you can bring on greater number of partners who bring assets themselves to partnership) - Low cost to set up (start acting, you are, don't need contract or verbal agreement, if you have a contract this can be complex, partnership act regulating what you do, if contract it has to be effective that it has to meet your intentions for separating from the governing of the act) - May require lawyer for complex contract - Cannot own property in its own name (company can do this, a partnership cannot, partners hold the assets not the partnership as an entity on its own) - Assets belong to the partners equally - Tax is paid by each partner as a self-employed person (not favorable for partnership, each partner paying tax as a self-employed individual)(only paying tax on what you receive out of the partnership) - Can be issues if no written agreement when disagreements occur **[Setting up the company (most complex)]** - The Companies Act 2006 ss7-15 (set up in regards to this) - Simple process to set up - Need to provide the Registrar with: (3 things to set up company) 1\. the constitution of the company -- the articles of association and any objects clause that limits the power the company has 2\. Memorandum of Association that states that the subscribers intend to form a company and become members (making clear statement we are establishing a company) 3\. Application of registration -- company name, share capital, address of registered office, private vs public, that liability of members is limited, names and addresses of shareholders, statement of compliance with the CA 2006 -(before 2006, private companies needed 1 member and public 2, but now both can have one member) -if all documents presented, the Registrar will issue a certificate of incorporation and the company starts to exist **[Why all the information? (business structure dealing with public, particularly public company selling shares, because risk public takes on they need to access information about this clause)]** - So public or government agencies can have access - The memorandum and constitution provides key information to the public - Provides the rules of the company - Provides the core structure of the company -- the board of directors, the general meeting (shareholders) and how much power is given to each **[Shares(advantage to raise capital through issuing of shares, public and private is different, shareholder come in and made public, they can fully paid, partly paid, or unpaid, shares allow capital to brought in but have control within that company)]** - Shares can be fully paid, partly paid or unpaid - If partly paid or unpaid, the shareholder can be called upon to pay at a later date - E.g. let's say you have a share capital of 40,000 pounds (looking for this). You subscribe for 20,001 1pound shares. You have other investors subscribe for the 19,999 pounds. Why would you do that? **[Public vs Private Companies]** - Two different forms of company - Private company: funding generally comes from founder through personal saving or loans, no minimum share capital requirements (bring on money, do have shares but not public shares, not raising capital from the general public, it may be you bringing capital, don't want to be public, but they want protection of limited liability) - Public: funding comes from investment by the general public, minimum share capital requirement of 50,000pounds -- s763) - When you choose to become a company you have to decide what you are after in a business structure - (chapter 1 (ss 755-760) and Chapter 2 (ss761-767) Public Private -------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------- Number of companies? As of end of March 2021, 6,103 plc registered in the UK (0.1%) As of end of March 2021, 4,539,191 private ltd registered in the UK (93%) Required to have a share capital? Yes No Limited or unlimited liability of members? Must be limited. Can be limited or unlimited, although the vast majority are limited Can offer shares to the public at large? Yes No Can list shares on the stock exchange? Yes, but the majority of plc do not list their shares No Minimum capital requirement? £50,000 Can be created with a nominal amount of capital suffix Plc Ltd Level of regulation? The CA 2006 regulates public companies more stringently than private companies. Listed companies are regulated even more stringently by having to comply with Pt VI of the Financial Services and Markets Act(FSMA) 2000 and the Listing Rules, and having to comply or explain against the recommendations in the UK Corporate Governance Code. **[Definitions]** S4 CA 2006: 1. A 'private company' is any company that is not a public company 2. A 'public company' is a company limited by shares..and having share capital -- a)whose certificate of incorporation states that it is a public company, and b)in relation to which the requirements of this Act...as to registration or re-registration as a public company have been complied with.. **[Private companies ]** - Commonly restrict membership - This is done in the articles of association - If a member wants to leave or dies, the directors have a say as to who will replace them as a new member - If a member wants to leave, there may be a pre-emption clause that requires them to first offer the shares to other members - More flexible regime -- private companies have been able to adopt a more flexible regime as often the members and the director are the same (think about board meeting requirements) - E.g. annual general meeting is not a requirement for small private companies under the CA 2006 - Cannot invite public to buy shares -- s755 - But no minimum share capital requirement -- so 1p would do - Members have limited liability -- so use Ltd - Members are only liable for the amount unpaid on their shares **[Small private companies ]** - Often no separation of ownership from control -- directors and shareholder may overlap, may also be employees (a florist who opened company is owner who is also the person controlling the company, nto a clear seperationg which happens in publc company, where directors who run company and shareholders own the company, more separate) - This negates most of the assumptions about the company's organisational structure - Close relationships can mean more disagreement which can be problematic for a minority shareholder - E.g 51% shareholder/s can choose who represented them on the board, which leaves the other 49% unrepresented **[Public Companies ]** - Aim to raise capital through offering shares to the public - Must issue a prospectus (document that gives information of the company, future predictions, past profits, a ten year projection, give every info you as prospective shareholder would want to invest in this company, this allows them to do this with all the knowledge they need) that outlines the companies plans (public companies you can find their prospectus, annual reports, and see how much money they made and how much they pay employees, how much money comes in, how much products cost, this is very public information) - Initial capital requirement is much larger than for a private company -- 50,000p -- s763 - Generally no restrictions on transferring shares from one member to another - Further if the public company is on the stock exchange, they are not able to have restrictions on transfer - Not all public companies are on the stock exchange -- the stock exchange is a company itself and public companies become listed by private contract with the stock exchange to gain access to the market: London Stock Exchange - A public company must state that liability of the members is limited -- public limited company (PLC). -- s58(1) **[Running the company ]** - Technically shareholders control the company through the shares they buy - Receive control rights exercised through the general meeting - Directors are appointed by majority vote of the shareholders and run the organisation of the company - Directors run the company and provide the shareholders with an annual report on the performance and prospects of the company - Accounts are certified by an auditor **[Advantages of a company ]** - Makes raising capital easier (if public, not a private company) - Shares allow for a large number of investors - Members have limited liability -- little risk - Limited liability: allows directors to take risks without shareholders losing personal assets - Will not come to an end on death or transfer - Formal constitution that outlines organisational and power structure -- as a company often has a large number of participants (a nice level of organisation) - Prestige attached to the ltd tag - Easy to expand - The company can own assets like IP rights, property - Tax is more beneficial than for sole traders and partnerships - Limited company will pay corporations tax on profits - Then profits leftover will be paid as dividends and shareholders will pay tax on their dividends personally - Directors and employees pay tax on their income **[Disadvantages of a company ]** - The corporate form may not be suitable (simple procedure, but as public company adhering to rules becomes cumbersome and may need help with regulations) - Separation between ownership and operation - Burdensome rules and regul