Commercial Law

 

 

Order Description

 

Commercial Law-

The law of undisclosed agency attempts to create a balance between the notion of privity of contract and the convenience of using agents in commercial settings. It focuses on the irrelevance of the identities of the contracting parties in commercial dealings. Said v butt is an example of a case where to much emphasis was placed on the identity of the contracting party. Critically analyse this statement with reference to the law governing those instances where a third party does not wish to contract with the undisclosed principal. (2000 words)

 

 

Referencing :- APA
Footnote Style

 

Disclosed agency
Here the third party knows that the agent is acting on behalf of the principal. There is named disclosed agency where the party knows exactly who the principal is, there is also unnamed dislodged agency where the third pay knows that there is a principal but they don’t know who they are.

Relations btw Principal and third party
The general rule is set out in Montgomerie v United Kingdom Mutual Steamship, this case involved Montgomerie who part owned a ship which he then insured with the steam ship association. He created an insurance relationship with the steam ship association through an agent. Importantly here, Montgomerie wasn’t a member of the steam ship association but the agent was a member, and Montgomeries name wasn’t on the policy. Montgomerie tried to recover for the losses that he suffered but the steam ship association claimed that the insurance excluded liability to anyone who wasn’t a member of the association. There was a membership relationship between the agent and third party but not between the principal and third party. The question was whether or not the insurance applied and where the legal relation to create, and it was held that the general rule was that the contract that results is the contract of the principal. The principal is the only party that can sue and be sued under the contract, the agent has no Liabilty because what they are doing is on behalf of the principal, the agent is merely creating a legal relationship between the principal and third party, they are not bound by it. There are some exceptions. Once the agent is formed, the agent essentially has nothing to do with the contract in the vast majority of instances. This means that the principal may sue or be sued if the agent acts within their actual authority or their conduct is ratified. But where there is apparent authority, the principal cannot sue but can still be sued. The conduct of the agent can affect relations between the principal and third party. The first type of situation we shall look at is settlement to the agent.

Settlement to the Agent
This refers to the situation where a third party pays the agent but e agent doesn’t pass it on to the principal. The case dealing with this is Irvine v Watson, in this case, Watson employed a broker to purchase oil for the,, the oil was bought from irvine(third party) on the terms cash on or before delivery and the brokers said that they were acting on behalf of the principal. Irvine delivered the oil to the broker without being paid and Watson thinking at under the terms, the agent must have paid paid Irvine for the oil then transferred money to their agent, unfortunately the agent didn’t pay Irvine and Irvine sued the principal for the balance. The question was whether the payment was sufficient, it was held that the seller is able to sue the buyer even if they have paid the agent. The contact between the principal and the third party still holds and if you haven’t been paid, you can enforce your rights under that contract to get payment even if the agent is being paid, the courts said that if its unjust for the buyer to call upon the seller for money, then you cannot sue. Watson had to pay Irvine again despite that he had paid the broker. The principal isnt bound by the third party paying the agent unless the agent had authority to do so. Also, if the agent is good. Enough to pass the money on, that is considered to be ratification.

 

Defences- the third party can set off all defences of the contract that they have against the principal. Actions that are against the agent personally and that are not connected to this contract cannot be brought against the principal. It has to be based on the terms of the contract and personal defences relating to the contract. The principal can rely on all defences arising from the contract and any personal defences they have but they cannot rely on any defences that the agent has. There are exceptions to this, one of which is where the agent may become personally liable, in which case, if there is personal liability the third party has the option of suing the principal under contract or suing the agent on the basis of personal liability. This is where the question of , merger and election starts to come in, this only applies when an agent is personally liable.

 

Merger and Election
Where the third party is to sue, they have to make a chipotle to sue either the principal or the agent. This is called the doctrine of election, once they have a judge t against one of the parties, they cannot bring the same claim later on against the other party. This is the doctrine of merger. The idea is that there is a single obligation either from the principal or the agent and you can’t claim twice by suing both. This is relevant depending on who has the most money. The first case to consider is Thomson v Davenport, this involved a Scott agent who sold whisky, he ordered some glass and earthenware thorough Davenport for Thomson, it was known that it was an un named principal, the agent went bankrupt and Davenport sued Thomson for the price. The court held that when you have a disclosed named principal, if the third party choses to sue the agent and fails, they then cannot sue the principal. Where it involves an un named principal it is the equivalent of not knowing who the principal is. The court said because it was an unnamed principal and they didn’t know who the principal was, the third party could not make an election at that time, so they had to sue the agent. In Debenhams v Perkins, Mrs Perkins went shopping in Debenhams, she purchased a series of items from Debenhams, she then separated from her husband and went and bought further items from Debenhams, full payment wasn’t received and then Debenhams obtained judgment against the items after the separation. Debenhams sued Mrs Perkins husband alleging that she acted on behalf of her husband. The court held that you can claim against a principal on agent when the agent is personally liable but you must choose. The court stressed that this is one cause of action and you can only bring one claim, this claim involved 9 items, four were bought when she was married, her husband was the principal and Mrs Perkins was the agent. Five where bought after the separation and Mrs Perkins was the principal and therefore became personally liable. This distinction becomes important because the claim for the four items when she was married didn’t succeed but the claim for the five items succeeded. Debenhams were trying to include the first four items with the last five items and deal with them all in one go. The court said this was a case of two distinct claims and he could sue again, it wasn’t a case of merger.

Under election and merger, the election must be clear and unequivocal, in order to do that, you need to know the identity of the principal before you make that election. The other thing to bear in mind is that merger and election only applies where the agent is personally liable. The agent in most cases of disclosed agencies will not be personally liable.

 

Relations between the Agent and Third Party
The general rule is Montgomerie v UK mutual steamship, the contract is that of the principal, the only party to sue and be sued is the agent and the agent is not liable as what they are doing is on behalf of the principal. This was reinforce in Lewis v Nicholson, here Lewis was a mortgagee of a bankrupt property, Nicholson was the solicitor acting on behalf of the assignees of the bankrupt. Nicholson and packers sold the bankrupts property and agreed to pay Lewis out of the bankrupts of the sale. The property was sold but Lewis did not get paid, it turned out that the Nicholson solicitors did not have authority and Lewis sued them personally for a breach of the agreement. The court held that there is no personal liability of an agent, but it is a matter of interpretation, importantly, a lack of actual authority does not necessarily result in personal liability. So Nicholson and Parker didn’t have authority to sell the goods but this in itself couldn’t give rise to personal liability. Where you might have personal liability are in relation to matters that involve fraud or deceit or an implied contract that there was authority, here there was no liability for the agent as it was the principal that was under the contract. The question then is when will an agent will an agent become liable. There are various various at stages at which you might say that rather than the contract being at principal, where the agent is acting, this makes the contract between the agent and the third party. The first case under this is on written contracts, the key case here is Universal Steamship v James McKelvie, here there was a charter party signed by agents, the agents signed for and on behalf of James McKelvie and Co as agents. They were then sued and the agents argued that they signed as agents so they were not personally liable, it was held that signing in the capacity of an agent was sufficient for an agent to avoid liability, by signing as an agent, they showed their intention not to be personally bound. In order to determine if this is the case for other written contracts, you need to interprete the terms of Contract. For partly written and partly oral contracts- fridges v Salmon ltd (the swan), here repairs where undertaken to a boat, the boat was owned by Mr Rodger who then hired it to his company, he used the company as an agent, he acted as principal and used a third party repairer, the contract in this case was partly oral and partly written and the bit that was written was signed on a company letter head that said J D Rodger Director, the repairers knew Mr Rodger owned the company structure, and he was the principal and used the company as an agent and they sued Mr Rodger when his company became insolvent. The court said that you need to determine the objective intention in the contract, who was bound, was it the company or the individual. For partly written and partly oral contracts, it depends on effect of the the terms used taken together, you need to consider the written and oral element. Here it was not made clear that it was in the capacity as the agent to avoid liability, as the use of the term director might be descriptive rather than excluding liability. if you describe yourself as an agent, that would be your role but if you describe yourself ada director, you might just be describing your position and the court drew a distinction between that it wasn’t as clear cut as holding yourself out as an agent because it could be descriptive of his position, they said you need to consider the written terms and the surrounding circumstances. In this case, merely stating your position in the company does not exclude liability, they didn’t use the language on behalf of, the plaintiff understood that the bill went to the company. What was fundamental was that Mr Rodgers was the owner and he had an interest in the repairs. And as a result, because the facts weren’t clear, they said he was personally liable cause he hadn’t excluded Liabilty, and the fact pointed to his getting the benefit of the contract when you interpreted the contract and the surrounding circumstances. When looking at a partly oral and partly written contract, you need to consider both the terms used and the surrounding facts that will inform your interpretation of that contract. The final case is where you have a purely oral contract, centre….. Case, here there were brokers called to order bonkers for a share from a third party,my he bonkers were supplied but the bill remained unpaid. The plaintiff brought a case against the defendants and the defendants argued that they were acting as agents and weren’t liable under the contract, the order was placed over the telephone (no written agreement ) but the plaintiff knew the defendant was acting as an agent and in this case it was for an un named principal. Here it was held that it was clear that the call was from agents with no intention of personal liability, it was clear that they were brokers and as broker, they would have no personal liability. Previous Payne to were not made by the brokers but by the principals who had instructed the brokers and they said, when interpreting these kinds of contracts, it was a question of fact, you had to look at the surrounding facts and determine where liability falls from the facts. Here there was no intention of personal liability from the facts, cause the third party knew they were acting as agents, payment never came from the agents previously, they had come from the principal. Why would she then think the agents will be personally liable in this case? If the agent is liable, then we elect, if the claim is successful, then merger applies.

 

When will the agent be entitled to sue on the contract made by the principals?
Raider v brokees, here the agent purported to act through named principal, the defendant discovered that rather than being the agent, the agent was actually the principal. The defendant found out and set delivery and part pay for the goods, the defendant then refused to accept the remaining goods and the plaintiff said they have to accept the rest of the goods. The defendant argued that they said they were acting on behalf of the principal which isn’t what they agreed so he wasn’t going to accept the remaining goods. The distinction between the agent and principal here is non existent, the defendant acted inconsistently. The court held that there was evidence after the first delivery that the agent was actuall acting as a principal and Third party had accepted this and continued to trade so the agent/ principal could enforce the contract. The agent will only be entitled to sue as an agent when they are the principal too. But this is partly based on how the third party deals with them, here, the third party had accepted, it was held that the defendant couldn’t go back on it later on. The position might be different if you find out that it’s not the agent but actually the principal and you reject the goods from the beginning. What’s fundamental in this case is that the principals identity was irrelevant.

 

Breach of warranty of authority
This relates to cases where an agent holds out that they had actual authority but it turns out that they don’t and the third party is induced by that and suffers loss eg yonge v Toynbee, a solicitor was instructed by Toynbee in relation to a defamation claim, tony de was alleging that the were defamed by yonge, before the action is commenced by the lawyers, Toynbee goes insane, unfortunately, the solicitors didn’t know that Toynbee had gone insane and they went on to act on the claim. The claim proceeded and the solicitors subsequently discovered that their client was insane and informed young. Young said he wanted all the legal proceedings to be struck out and he wanted the agents to pay he’s legal costs for defending this. The court looked back to previous case law and a distinction was drawn between two different types of cases, under previous case law, were an agent had no authority, they were held to be liable, where they did have authority but later on didn’t have authority, the agent would not be liable. This case falls in the middle of this illustration so the court said hey would drop this disctinction and focus on the actual effect of acting without authority. They said that there was liability here because an honest belief of authority doesn’t prevent the solicitors from accruing damage and they said at the liability arises from an implied undertaking that authority exists. They said that this is the starting proposition and facts can change is but in this case, there were no facts that could change this. Where an agent holds themselves as having actual authority when they don’t, even if it is with an honest belief, the third party, accrues damage, they will be liable for it from the implied undertaken given that they have actual authority.

 

Undisclosed Agency
This arises where there is an agent acting on behalf of the principal and the third party is unaware that the principal exists. In undisclosed agency, the contract is formed between the agent and the third party, the question that arises here is how the principal enforces his rights. They actually have to do what is called intervening, they intervene in this contract where something goes wrong and let’s it known to the third party that he is the principal. However, this isn’t a guarantee of rights, this relationship creates few contracts. Undisclosed agency is contrary to the notion of privity of contract. Undisclosed agency is contrary to the notion of privity of contract but has been given effect cause it is commercially convenient to do so.

Relationship between the undisclosed principal and third party
Commercial convenient is prioritised over privity of contract and the idea is parties are happy to contract with anyone, the identity of the parties is not relevant. From a legal perspective, this has a few implications which are set out in Sui Yin Kwan v Eastern Insurance, this case sets out how the liability passing works. It states that an undisclosed principal may sue and be sued on the contract but they have to intervene in the contract., there is no entitlement of the principal to the contract. In order for them to intervene, the agent must have intended to act on the undisclosed principals behalf. If the agent is not acting on the undisclosed principals behalf, they are just entering into a contract directly with the third party. Additionally, the agent may sue and be sued because this is where the rights and obligations were set out. The third party can bring defences both against the principal and agent. This goes against privity of contract but is commercially expedient.

 

Exclusion of Principal by contract
The first situation where you can exclude the principal by way of contract can be seen in Keighley Maxsted & co v Durant which set out some key principles as well as balanced the tension between privity and commercial convenience. This case was the first to recognise that it’s an anomaly that the principal may be bound when the third party doesn’t know of thier existence and it wasn’t the intention of the third party. This becomes relevant when we start to apply these to cases as seen in the case of Fred Drughorn, here, we had a situation where we are looking at the terms of the contract and trying to see if the terms of the contract implicitly exclude the undisclosed principal. Here there was an undisclosed principal who claimed to sue on a charter party, there was the hire of a boat and there was claims to be able to sue. The charter party was signed by the agent and they signed it as charterer. The issue was whether the agent signed on their own behalf of whether they were acting as agents. The courts said that in disclosed agency, there will be a relationship between the agent and third party and the principal would be excluded. However, in undisclosed agency, the courts said evidence was admissible to show that the agent was acting on behalf of the undisclosed principal so the, agent can say they were acting as an agent, there is an undisclosed principal and he can bring evidence to support that, but it’s subject to certain limitation so an agent acting through an undisclosed principal may not be accepted if the act of the agent is contrary to the terms of the contract. In this case, there were no contradictory terms in this charter agreement because to hire a boat,you don’t need title, so the undisclosed principal can intervene and enforce the contract. If in a contract, the agent has signed the contract in a particular capacity but not saying as agent, you can bring evidence provided it is not inconsistent with the terms of the over all contract. When your looking at terms of a contract, it doesn’t matter which description the agent has by thier name and whether they are trying to disclaim it or not, they can bring evidence against the undisclosed principal provided it doesn’t undermine the purpose of the contract. The question really is whether or not the agent has impliedly contracted that there is no undisclosed principal behind them.

 

Exclusion of an undisclosed principal due to personal characteristics of an undisclosed principal
There are two types of cases: the positive attributes of the agents and the negative attributes of the undisclosed principal.

Positive attributes of the agent- here the third party only wants to deal with the agent due to some particular characteristics that the agents have. E. G if the agent has art skills. This is were privity of contract comes in because it limits the contract to those who have actually signed the contract. The difficulty is that the third party has no idea of the undisclosed principal so it creates tension. Generally, the principle is that an undisclosed principal cannot intervene in contracts where the third party relies on the particular attributes of the agent and the third party cannot vicariously performed. The case of Green v Down, here the third party negotiated with the agent for a particular price, the price reflected that they owed money and they took that into account when deciding the price. Undisclosed principal can’t therefore intervene because it relates to the personal attributes of the agent. It’s an exception to the policy that in commercial cases, the identity of the party is irrelevant. In Rolls Royce engineering v Reekardo, they tried to work out whether this case was on whether or not it is a positive attribute of the agent, here, Allen engineering were a subsidiary of rolls Royce and they acted as agents of rolls Royce, they entered into an agreement with Reekardo for the development of a new engine. The contract followed from an earlier agreement and the question was whether allen was acting as an agent for rolls Royce or whether they were acting in their own capacity. It was held that subjectively, it doesn’t appear that allen had thought that they had entered into a contract for an undisclosed principal. Allen didn’t think that they had entered into the contract on behalf of rolls Royce, Allen thought they were entering it in their own capacity but objectively, it appeared that rolls Royce was an undisclosed principal so the issue here was whether to look at what Allen thought they were doing subjectively or do we listen to the objective view which says that rolls Royce is an undisclosed principal, the court said you need to look at the intention subjectively. Ie what the party thought they were doing. The court held that this wasn’t an ordinary commercial contract, it was one where the identity of the parties was important, previous work undertaken by Allen was paramount to show that there was an existing working relationship. Therefore Allen entered into this contract as a principal rather than on behalf of rolls Royce.

 

Negative attributes of the undisclosed principal- you don’t care about the agent, the key case here is said v butt, this is an unusual case from a commercial perspective. Said was a theatre critic and he wanted to attend the opening night of a theatre production, he knew that he wouldn’t be able to get tickets because he had an ongoing dispute about a prior review he had given which wasn’t favourable. So said got a friend to purchase the ticket, when said turned up, butt, the manager of the theatre refused to let him in and then sued butt for wrongfully inducing the owners of the theatre for entering into the contract, the court took an odd view, they held that the special characteristics of the opening night of the theatre made this a unique event and if he hadn’t used an agent, he wouldn’t have gotten a ticket for such a special event. The court also said that said knew this and they held that there was no contract between said and the theatre. They used the phrase of the personal element that was strikingly present in this case, as a result, said could not enforce the contract. In contrast, in Dyster v Rydall and sons, involved the sale of land and dust all knew the vendors (Rydall) will not sell the land to him because they distrust him, so dyster ask someone to purchase the land on his behalf without disclosing the agency relationship, when dyster discovered that it was Rydall, that wanted the land, he sought to resist specific performance of the contract on the grounds of deception. The court held that a contract for the sale of land can fall within items that can have specific performance can be brought. They said that if the agent had entered into the agreement, he could have assigned it to dyster. They said the identity of dyster was irrelevant, the court went on to say that the failure to disclose a principal when your not asked does not amount to a misrepresentation by silence. They said that because of this, dyster could seek specific performance of the contract because the identity of the undisclosed principal was not important (use this to differentiate said v butt).
Said v butt isn’t the generally accepted approach and there are few reasons for this, firstly, the theatre ticket could have been assigned in exactly the way the land could have been assigned. Secondly, Justice McArdy who gave the key judgment preceded on the basis that it was a contract between said and the theatre, though he treated it as disclosed agency rather than undisclosed agency. So said v butt operates quite nicely but the reasoning behind it doesn’t quite work when it’s compared with dyster v Rydall.

Merger and Election
In Clarks v Bucker, A purchased the airline tickets on credit from Clark and Booker, the travel agents were the third party here. The tickets were bought on credit, the money was never paid and when the travel agents discovered that the agent was acting for an undisclosed principal, they wrote to both the agent and the undisclosed principal threatening legal action unless payment was received. Clarks and Booker commenced action against the undisclosed principal and unfortunately, the undisclosed principal was going insolvent so the third party decided to sue the agent. The question was, ‘Had they made an election which prevented them from suing the undisclosed principal?”, that prevented them from suing the agent as well. The court took into account a few factors, firstly, they said that the commencement of proceedings is a strong indication of election but is not conclusive, it’s a prima facie case of election but this is rebuttable and you can bring facts to rebutt that presumption, the courts said the third party needs full facts when making that election and they must be unequivocal when making the election, in this case, they had sent both parties a letter to sue and this was never withdrawn, so it was not an unequivocal act and the option of suing the agent remained (cause the third party didn’t sue one of the parties, he sued both), this is unlike disclosed agency. Merger operates in the same was as disclosed agency, once you put a judgment, you can’t bring a claim against another party.

Set- off- here you have defences against the agent. As seen in cookes and sons,…. Where the agents who acted on behalf of the undisclosed principal and they sold cotton to Cooke who went insolvent, the price remained unpaid and the trustee in bankruptcy of the undisclosed principal sought money from Cooke. Cooke knew that limpsy acted for an undisclosed agency and on his own account, ie sometimes for an undisclosed principal and other times for himself. In this case, Cooke didn’t know whether he was acting as agent or on his own behalf in this particular contract. The court held that they could use defences against the principal if these accumulated before they knew the principal exists. If the third party isn’t sure whether the agent is acting for a principal or on their own account, they should make enquires or lose the right to set off. The court said that selling in your own name by a broker is one fact from which it can be inferred that he is selling his own goods and there was no undisclosed principal. But in this case, the conduct was not intended to induce his belief. The problem with his cases is that there is no clear legal justification behind why to take this approach and different judges took different interpretations. Lord Watson took the view that it must be shown that the agent induced that he was selling on his own account and he based it on estoppel, Lord Gerald said that it’s not estoppel- basis for this rule isn’t clear. It isn’t really clear how this whole issue entirely works(see commentary)

Settlement- here the agent doesn’t pass the money on to the principal. In Armstrong v stokes, we have commission agents who acted for themselves and also as agents. The third party dealt with the agents and never asked if there was a principal behind them. Shirts were sold on credit and the agents were acting for stokes, the shirts were delivered but the agent didn’t pay the undisclosed principal so Armstrong tried to sue stokes for the money. The courts reiterated the principle from disclosed agency that payment to an agent is not payment unless it is passed on to the party who is entitled to the money. Nothing precludes the past payment unless they’ve told the agent that it’s okay. In undisclosed agency the problem is that the third party doesn’t know of the principal so it seems quite sensible to pay the agent. The courts said undisclosed agency is an exception to this rule.

 

Relationship between the agent and third party
The agent may sue and be sued on the contract by the third party. The third party can raise any defence against the agent that can also be raised against the undisclosed principal. When the undisclosed principal intervenes, the agent looses their right of action and the agent will remain liable until the agent chooses who to sue. We are looking at the situation where the third party doesn’t know of the existence of the principal, and as a result the undisclosed principal may sue and be sued by intervening on the contract. The agent may sue by the third party because that’s where the contract lies but if the undisclosed agent intervenes, the defendant has no right of action. An agent can imply that there is no principal through the terms of the contract and if the third party only wants to sue the agent, then the undisclosed principal may be excluded. If they don’t want to sue the undisclosed principal because they don’t like them then we can use the cases of said v butt and Rydall v Dyster. The rules in merger and election may change to reflect that the third party doesn’t know that the principal exists.

 

There isn’t really a coherent theory to demonstrate how agency works. The fundamental element of agency is summed up in the quote ‘he who acts through another is deemed in law to do it himself’. The idea is that an agent is someone who acts on behalf of someone else to enter into legal relations. It’s difficult to give a precise definition to agency due to the variety of ways that agency can arise. It’s a triangular relationship, the agent owes obligations to he principal eg fiduciary duties, a duty to account etc. in some instances, the third party might be able to sue the agent rather than the third party and this depends on whether the agent has acted in accordance with their instructions and what they have said to the third party. We have the contract between the principal and third party which the third party will be able to sue on, in some cases, the principal may also be able to sue but it’s not in every case that the principal will be able to sue. A distinction is drawn between disclosed and undisclosed agency. In disclosed the third party knows that the agent is acting for a principal and may or may not know the name of the principal. In undisclosed, the third party does not know that the agent is acting for a principal. And there are series of implications that flow from this. The manner in which the agent acts has consequences for the legal relations between the principal and third party.

Where does agency arise ?
Auctioneers, directors, partners, solicitors and counsel, factors, brokers, del credere, confirming houses.

The EU is also involved in agency, primarily through self employed agents which is a new concept that has come about due to the commercial agents council directives regulations 1993, which implements the EU directive on self employed commercial agents. The idea here is that the EU is there to protect particular things in the market eg, if you have a particular status they would try to put into place policies to protect them. What they do is to treat agents as employees rather that independent contractors. It applies to any conduct as an agent in a member state irrespective of the law chosen to govern the contract. It doesn’t t cover all agents. It only apply to sale of goods and excludes services.

Agency doesn’t have a clear legal basis, it has evolved with time. If you want to bring an action against an agent, you have to do so on a personal basis. A distinction needs to be draw from whether the parties are entering the contract on their own behalf or on behalf of somebody else. Agency may be used in various contexts. A principal will be liable to their employee (vicarious liability), if their acting within their authority. An agent may act outside of their authority but still win their employment, liability will depend on the nature of the tort.

Contract- Agency can be argued to be contractual in nature, the relationship between the agent and principal is often governed by contract. And if you have breaches of the agency relationship, you can get contractual damages. The problem is that agency can also arise where there is no contract whatsoever. The agent often has confidential information which may be open to abuse. An agent and principal shouldn’t have a conflict of interests, agents also have to make full disclosure of any sort of personal interests within he transaction. Restitution may occur where the agent is held liable for money withheld from the principal in an action for money hat hadn’t been received. Doesn’t explain the legal basis for agency.

Tort- an agent must act using reasonable care,even if there is a contract, it may be implied to at with reasonable care at all times, this however doesn’t explain how agency works.

 

Theories for explaining how agency operates:
1) consensual model- this is reflected in …….l definition (see slide). Agency is a fiduciary relationship which exists between two persons, one of whom expressly or Impliedly manifests assent that the other person should act on his behalf so as to effect his relations with third parties and the other of whom manifests assent to act in pursuit of this manifestation. The key element here is the manifesting of assent. The parties can assent expressly or Impliedly. Impliedly may arise in a certain way that the principal doesn’t object to that is often acting on behalf of the principal. There are some instances where agency arises without the consent of the agent or principal eg agency by necessity and he principal may know nothing about this. Despite his, this approach has been used by the courts, in the case of Garnac grain v HMF Fairclough, Lord Pearson expressly said that this consensual model applies to agency. He said ‘ the relationship of principal and agent can only be established by the principal and agent and they would be held to have consented if they have agreed to what amounts in law to such a relationship even if they do not recognise it themselves and even if hey have professed to disclaim it but the complaints must be given by each of them expressly or by implication from their words and conduct’. This quote gives rights to a few problems, agency by necessity doesn’t require consent, secondly, can you consent to something if you don’t know what you’re consenting to ?

2) power liability model- his is reflected in the definition given form the law of agency. The focus here isn’t on consent but on the agent representing the principal to alter the principals legal position. The agent has the power to change the principals legal relationship with third parties. Liability flows from the principal as a result of the agent acting in this manner. This idea has been developed. The power conferred by law on the agent is said to be identical to the agents own power, the agent can’t enter into a contract with the third party if the principal couldn’t do it themselves.l it doesn’t fully explain why and in what circumstances the law gives rise to an agency relationship. Krebbs takes a slightly different approach and doesn’t try to define agency, rather, he focuses on his an agent creates legal rights and obligations between the principal and third party. He said that the focus shouldn’t be on the agent but on the contractual party and we should apply the rules of offer and acceptance. The decisions that judges reach will be based on which of the models they follow.

 

Ways of creating an agency relationship
Agency can be created in writing, orally or by deed, there is no strict formality requirement for creating an agent unless you’re using a deed, it can also be implied by conduct but the principal but have the capacity to contract.

1) Actual authority- this involves the prior consent of the principal, the scope of the authority is determined by the terms of that agreement. If an agent acts within their authority, the principal can sue the third party and the third party can sue the third party, so it is important to determine the scope of the authority. It is also important from the point of view of the agent, they are going to be indemnified or remunerated if they act within their actual authority. If the agent acts outside their authority, they may enter into the contract on behalf of a third party rather than enter into it in behalf of the principal. – Express Actual Authority: this is based on the express actual agreement of the principal and the agent. When dealing with this, you need to consider the exact instructions given and interpret the terms of that express consent. The case dealing with this is Ireland v Livingstone, in this case, Livingston gave Ireland ambiguous instructions regarding the quantity of sugar they wanted their agent to buy. Livingston said they wanted 500 tonnes of sugar plus or minus 50 tonnes. 400 tonnes of sugar were sent by the agent in one shipment and Livingston attempted to reject the sugar and cancel any further shipment. The issue was whether the sugar could be in one shipment or a series of shipment to get to that figure. The court held that a reasonable interpretation of ambiguous instructions in good faith will be upheld. Here here was a reasonable excuse the agents had acted honestly and it was still within the authority. As a result, it was held that the principal couldn’t reject any further shipment. If the instructions are really unclear to the agent, then it’s probably best for the agent to seek clarification from the principal but it was held here that there was a reasonable excuse. – implied actual authority: for implied actual authority, we are not looking at anything expressly stated, we are looking for situations where the actual authority is inferred from the parties conduct generally. Implied actual authority has a variety of forms: the first of which is conduct, as seen in Hutchinson v Brayhead in this case, there was a company chairman acting as the executive director and chief executive with the agreement of the company and any other members of the board. Brayhead( the company chairman) gave a letter of indemnity to encourage the purchase of shares in a company, and they subsequently went into liquidation, so the shares went insolvent and everyone sought to rely on the indemnity. Brayheads argument was that there was no indemnity cause he didn’t have authority to sign the letter. It was held that there was no express authority to give the indemnity but there was an implication by his conduct that he had authority to give the indemnity. The authority was implied not by the fact that he was a company chairman but by his conduct because he acted as a de facto managing director without complaint from the rest of the company. He didn’t need the sanction of the company board.
Another form of implied actual authority is incidental authority where an agent can do things that are necessary for the execution of their express authority. There is usual actual authority which is usual and which happens in a particulate trade. Also there is customs actual authority which are reasonable and lawful customs in a particular market.

 

 

When does an agent act outside their actual authority?
When they exceed the expressed terms or the implied terms. That doesn’t mean that there won’t be an agency relationship because there can be agency without agreement.

 

Agency without agreement
1) Apparent Authority- here the principal will be liable but can’t sue on the contract, he third party can sue the principal. Apparent authority is based on a form of estoppel, Rama Co- operation Is the case that formulates it, it says you need representation, reliance and alteration of position based on the reliance.

– representation: here the contracting party is represented by an agent, some of the problems that this gives rise to are dealt with in the Egyptiian International Foreign Trade case, here there was a signature by s credit manager of a bank, this signature was in a letter of guarantee and unfortunately, it’s only the credit managers signature and in this case, to have authority, you needed to have two different signature from two different managers within the bank. The difficulty that arises here is that the agent had represented that their signature was sufficient. The starting position generally in agency is that the third party can rely on representations provided that the person making the representation had authority to make it, however, an agent can also make a representation if it’s within their actual authority. The question that LJ Browne Wilkinson made here is what if the agent say they have the authority to make representations when actually they don’t? Browne Wilkinson said that why should the authority to do this fall outside their actual authority?? He said that if this is the case, the agent had authority to make representations that one signature was enough and this was relevant to determine if the principal had actual authority. This stand is contrary from the fact that representation has to come from the principal or from the agent within actual authority. This becomes dangerous because they are potentially going beyond what the principal has given the instructions to do and then the principal will be liable for that.
– Reliance: there must be a causal connection, one party must have relied on the representation.
– Alteration of position- you generally have to show that you’ve entered the contract.

The agent will have apparent authority cause the third party doesn’t know whether the third party has actual authority or not. This becomes slightly more complicated when we look at companies as seen in the case of Freeman v Lockier, here there was a company that didn’t have a managing director, there was a de facto managing director who basically took on board this role without any appointment and he instructed some architects to develop some plans. The architects asked then asked if they could be paid for the plans and the company decided to say that Mr K had no actual authority so they weren’t going to pay the architects. The issue was whether there had been a representation that had come from the company cause the company hadn’t ,ads representation and it had to act through its agents. The court went through series of points in relation to how to deal with companies in relation to apparent authority. They started of with the basic proposition that the third party doesn’t know the actual authority of the agent and apparent authority arises based on a represention that the representation made by the principal that the agent has authority. They outlined the two difficulties with cooperation, firstly, they are traditionally limited by constitutions, secondly, a cooperation cannot act except through its agents, therefore, the representation must come from an agent within actual authority and they said that for a third party to rely on the acts of an agent of a cooperation in the absence of actual authority, there are four elements that you must prove: that there is representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced is made by the agent that they had authority to enter into that particular type of contract. Secondly, that such representation was made by a person or persons who had actual authority to manage the business of the company either generally or in Respect of those matters to which the companies relate. Thirdly, the contractor was induced by the representation and relied on it and finally, that under its articles or memorandum of association, the company wasn’t deprive of the authority to enter into a contract of the kind sought to be enforced. The court said that the board knew that Mr K was contacting agents and architects and said that they had permitted him to do so, they said that there was no actual authority but prior conduct indicated that the company had permitted him to do what a managing director would normally do and enter into the types of contracts required to run the company. Here the contract was binding. Because you need a representation from the principal, this cannot apply to undisclosed agency.

2) Usual Authority- Watteau v Fenwick – involved he supply of cigars to the victoria hotel, the hotel was run by humble who was a licensee of the owner, Fenwick. Watteau didn’t know about fenwick (undisclosed). What is fundamental is that humble had been forbidden to buy cigars in credit so there is no form of actual authority here. Cigars were however standard for this sort of arrangement (bar) the decision by Justice Wills was that a principal is liable for acts of an agent within the usual character not withstanding limitations between the principal and the agent. There is no legal basis for this form of authority apart from this case. This act couldn’t be ratified by the principal because humble didn’t act as an agent because he had no authority whatsoever to do what he did. And it can’t be agency by necessity because purchase if cigars in a hotel isn’t a necessity. The case created a new form of agency for an undisclosed principal where the third party is relying on someone in the position of an agent. The third party shouldn’t be disadvantaged by unknown limitation between the principal and agent. This is still binding law.

3) operation by law/ agency by necessity- this is agency that arises irrespective of consent. It undoes the consensual model of agency, it applies in limited situations. We are concerned here with instances of emergency where a person may have authority to protect property. The key case here in China Pacific / The Winson Case, this involved a wheat shipment, the ship master entered into an agreement with some salvors, the salvors tried to protect some wheat and sent some to manilla and tried to store the rest, the salvors tried to reimburse the costs from the principal. It was held that the ship Master became an agent of necessity regarding the salvage goods giving rise to Liabilty between the owner and the potential property owner. They set out certain legal requirements that have to be met to become an agent of necessity. Firstly, the principals property must be in the agents possession under an existing legal arrangement, the agent is expected to get instructions from the principal. Secondly, you need an agent that threatens the property, thirdly, the agents actions must be taken in good faith, they must be commercially reasonable and proportionate. The agent mustn’t have given express instructions to the contrary. In this case, all the requirements were met reimbursement was permitted.

 

Ratification – this is a remedy for when an agent acts without authority or exceeds their authority. Ratification validates the action of the agent after the event. The principal can apply expressly or Impliedly but the ratification must be clear and unequivocal in light of the facts of what the agent has done. A principal cannot ratify where a principal acts on their own behalf. In Keighley Maxtead v Durant, keighley Maxtead instructed their agent Robert to buy wheat on behalf of himself and the principal, Robert bought wheat from Durant at a higher price than that agreed by the principal, outside actual authority. Robert represented the principal but also bought on his own behalf. Roberts bought in his own name as he didn’t inform Durant that he was acting for keighley Maxtead, the question was whether or not they were acting as agents. Keighley Maxtead attempted to ratify the conduct of Robert so they can be bound by the contract, important here is that Durant then tried to sue keighley Maxtead because they weren’t paying, the question was whether or not keighley Maxtead had ratified this, in which case, they are bound or if they had not ratified this the principal isn’t bound. The court held that a principal is meant to act in the same way as if prior authority is given cause the third party thinks they are contracting with the agent. An agent cannot then think he can introduce a third party to the contract where the third party doesn’t know the principal. Ratification in,y applies to disclosed agencies. The contract therefore sat between the agent and third party. There are some other requirements for ratification eg the principal must exist at the time of the act, the principal must be ascertainable, must be competent and have capacity and you can’t authorise an illegal act.

What happens when the principal ratifies the act ?
Bolton Partners v Lambert, Lambert made an offer to scratchley who is the agent of Bolton Partners, the offer was accepted without authority and Lambert withdrew the offer before ratification took place. Bolton Partners claimed for specific performance of the contract. It was held that ratification applies back to the time that the unauthorised act was undertaken, therefore, scratchley was authorised to accept the offer at he time as ratification undid the agents lack of authority. It undoes everything. Is case also said that ratification must take place within a reasonable time frame. Ratification is subject to third party rights according to the case of bird v brown so if you transfer goods to an innocent ire party before ratification, you have to consider how those third party rights might fit with that and if a contract is made subject to ratification, then the third party can withdraw prior to ratification.