LAW RELATING TO AGENCY Shanila H. Gunawardena LL.B. (Hons.) - - PowerPoint PPT Presentation

LAW RELATING TO AGENCY

Shanila H. Gunawardena

LL.B. (Hons.) (Colombo) Attorney-at-Law, CTA (CASL)

INTRODUCTION

• General principle of contract law – privity of contract.
• The concept of agency – an exception to the aforesaid general rule.
• Agency involves 3 persons: (i) principal (ii) agent (iii) third party
• A representative called an “agent” contracts with “third parties” on behalf of another person

called the “principal”.The “principal” acquires rights and liabilities under such contract.

• An agent is a person authorised, expressly or impliedly, to act for his principal so as to create or

affect legal relations between the principal and the third party.

• Existence of a “contract” is not mandatory; principal authorizing the agent to act on his behalf

and the agent consenting to exercise that authority is sufficient.

• 2 important general rules:

(i) Whatever a person may do by himself, he may do through an agent except acts that involve personal skill and qualifications, or where the contract to be performed is of a personal nature (e.g. marriage, giving lectures, writing a book, painting). (ii) Subject to the above, “he who does through another, does by himself”. Acts of an agent are, for all legal purposes, acts of the principal.

CREATION OF AGENCY AND DIFFERENT TYPES OF AGENTS

• By express agreement – Appointment is expressed. May be made in writing
• r verbally. Written appointment may be made by way of a power-of-

attorney.

• By implied agreement – No evidence of appointment either verbally or in
• writing. Facts and circumstances, conduct of the parties show that an

agency was created.

• By operation of law – Agent of necessity; agency by marriage and

cohabitation; agency by ratification; agency by estoppel.

AGENT OF NECESSITY

• This is a person who in circumstances of an emergency acquires by operation of

law, a presumed authority to act as an agent.

• Some unforeseen event can create an agency and the agency relationship can arise

even against the intentions and wishes of the parties concerned.

• Recognises the inability of the agent to communicate with the principal.
• Commercial necessity imposes on the agent the duty to act in good faith in the

interests of all parties.

• The act of the agent for which the principal is to be made liable must be reasonable

and not extravagant. Sachs vs. Miklos

• Not common. But can occur.

CREATION OF AGENCY BY MARRIAGE AND COHABITATION

• A wife is presumed to have authority to pledge the husband’s credit for

necessaries (food, clothing, medical attention for the spouse and children) in keeping with their social status.

• Necessaries do not include luxury items or items such as jewelry.
• Painta vs. Macrow and Sons Pty Ltd

CREATION OF AGENCY BY RATIFICATION

• Principal adopts or confirms an earlier act done by the agent which was not binding
• n the principal.
• Agent’s act that is ratified, must have been done expressly on the principal’s behalf.

The third party must have been aware that the agent was acting not for himself but

• n behalf of the principal.
• Ratification must be based on full knowledge of the material facts.
• Ratification must take place within a reasonable time.
• A forgery cannot be ratified. However, a person who knows that his signature has

been forged may be estopped from denying that the forged signature was truly the signature.

AGENCY BY ESTOPPEL

• Generally, a person who has let another person believe that a certain state of

affairs exists, is not later permitted to deny that state of affairs if the other person had acted to his detriment in reliance of that state of affairs. He is estopped or prevented from taking a different position.

• If a person by words or conduct represents to the world that someone is his agent,

he cannot later deny that agency if third parties had dealt with that person as if he was the agent.

• Rama Corporation vs. Proved Tin and General Investments Ltd – emphasised 3 main

requirements for agency by estoppel: (i) A representation by a principal; (ii) A reliance by a third party on that representation; (iii) An alteration of the third party’s position resulting from such representation.

CLASSIFICATION OF AGENTS

• Mercantile agents: has the authority to sell goods, buy goods or raise money on the security of goods.
• Factors: a mercantile agent to whom goods are entrusted for sale. Has wide discretionary powers in

relation to the sale of goods. Can sell the goods in his own name upon such terms as he thinks fit.

• Commission agent: a mercantile agent who buys or sells goods for his principal on the best possible terms

in his own name and who receives a commission for his labour.

• Del credere agent: one who in consideration of an extra commission, guarantees the principal that the

third parties with whom he enters into contracts on behalf of the principal shall perform their financial

• bligations. E.g. he assures the principal that if the third party dies not pay, the agent will pay. Special type
• f agent who acts as a guarantor (surety) as well as an agent.
• Broker: one who is employed to make contracts for the purchase and sale of goods or property. Not

entrusted with the possession of the goods. Only acts as a connecting link and brings the buyer and seller together to the bargain and if the transaction is successful, the broker becomes entitled to his commission which is called brokerage. Can charge from both buyer and seller as they act as agent for both.

AUTHORITY OF THE AGENT

• Actual/express authority: authority expressly conferred on the agent by the

principal.

• Implied authority: law implies an authority for the agent to perform certain

acts which are incidental or necessary to carry out what he is expressly empowered to do.

• Apparent or ostensible authority: the agent has no real authority but has

the appearance of authority. Agency by estoppel is an example. If the third party had reason to believe that the agent had no authority to do a particular act, the agent has no authority. De Silva vs. Don Carolis & Sons Ltd.

DUTIES OF AGENTS/ RIGHTS OF THE PRINCIPAL

• Agent must follow the principal’s instructions – Turpin vs. Bilton – agent failed to insure the

principal’s goods which he had undertaken to safeguard. Agent was held liable for the loss.

• Agent’s duty to exercise reasonable diligence, care and skill – Standard of care expected of an

agent is which is normally expected of a person engaged in such work. If the agent acts in a reasonable manner, he will not be liable for negligence, even if his efforts were unsuccessful. Absence of remuneration is a factor which rends to reduce the degree of care and skill that is expected of an agent.

• Agent must act in person and not delegate his duties – Unless when appointing, the principal

had permitted a delegation of duties, an agent cannot delegate his duties to others. Exceptions: (i) Where there is an express or implied authority to delegate such as by professional or trade usage. (ii) May delegate purely ministerial acts such as the signing of a letter or the giving of a notice where such act requires no personal skill or confidence. (iii) If the delegation is ratified/ approved by the principal.

DUTIES OF AGENTS/ RIGHTS OF THE PRINCIPAL (CONT’D)

• Agent’s duty to act in the principal’s interests – must always act in the interests of and for

the benefit of the principal. Agent’s interests must not conflict with the principal’s. Principal’s interest must always have priority over the agent’s. Agent must disclose anything he knows or learns which may affect the principal’s interest and judgment. Agent must act honestly. Since there is a fiduciary duty, agent should not make secret profits.

• Agent’s duty not to divulge confidential information – agent must not give any such

information to anyone and must not use the same for his personal benefit or interests.

• Agent’s duty to maintain records – must maintain proper accounts relating to his work as an
• agent. Must not improperly mix his principal’s funds with his personal funds and if he does

so the law will presume that the entire sum belongs to the principal.

DUTIES OF THE PRINCIPAL/ RIGHTS OF AGENTS

• Right to remuneration – the amount will depend on the agreement appointing the agent. In

the case of solicitors, stockbrokers, real estate agents, remuneration will depend on the fees and commissions charged in that particular profession or business. Advisable to clarify the amount and terms of remuneration with the principal before accepting the agency.

• Right to an indemnity – while acting for the principal, agent may incur certain liabilities or

make payments on behalf of the principal. The agent is entitled to be indemnified against such liabilities or to recover any amounts so paid.

• Right to exercise a lien – right to retain principal’s goods which are in the agent’s

possession, as security until the amount due to the agent is settled.

TERMINATION OF AGENCY

• By operation of law

(i) Death, mental incapacity or bankruptcy of the principal or the agent. (ii) If the subject matter of the contract for which the agent is appointed becomes illegal (e.g. agent to

• perate a casino) or is frustrated (e.g. agent to sell a house which is subsequently destroyed by fire).
• By agreement between principal and agent

(i) By mutual agreement between the principal and agent to bring the agency to an end. (ii) By the agent completely performing the contract of agency (e.g. agency to sell a house is completed when agent finds a purchaser acceptable to the principal). (iii) By revocation of the agent’s authority by the principal. (iv) By dismissal of the agent by the principal on discovering that the agent had breached his duties (e.g. secret profit).