THE LAW OF AGENCY

• A large proportion of contracts are made, at least on one side, through agents, since
in most contracts at least one of the parties is a company and companies have to
act through human beings who act on their behalf.
• An agent can be defined as ‘any person who happens to act on behalf of another’
(Lord Alverstone CJ The Queen V Kane)
• The definition is broad and imprecise. Any concise definition of agency must be
treated with care.
• It is likely to be flawed by errors and omissions making it misleading. (See Seally and
Hooley)
Agent Definition- the law S.118 Contract Act 2010

“Agent” means a person employed by a principal to do any act for that

principal or to represent the principal in dealing with a third person;
“principal” means a person who employs an agent to do any act for him or her
or to represent him or her in dealing with a third person;
“sub-agent” means a person employed by and acting under the control of an
agent in the business of the agency
Definition of Agency –The Theories

 Power Liability Theory (The power-liability theory says that an agency exists
when a person (the agent) acquires the power to alter the principal’s legal relations
with a third party so that only the principal (and not the agent) can sue or be sued
by that third party). Criticisms -Focuses on the external relationship with the third
party.

 Consent theory (Agency is the fiduciary relationship that arises when one person
(a ‘principal’) manifests assent to another person (an ‘agent’) that the agent shall
act on the principal’s behalf and subject to the principal’s control, and the agent
manifests assent or otherwise consents to act.)

 Qualified consent theory (It combines the consent theory with the protection of
‘misplaced reliance’ to account for actual and apparent authority)
 Differences between Agency and Trust

 There are similarities between agency and trust, in that both agents and trustees
have control over property to which other people are beneficially entitled.
 Both also involve fiduciary duties.
 There are, however, significant differences. A trustee, for example, has a legal
interest in the trust property, whereas the agent does not have such an interest in
the property with which he deals on behalf of the principal.
 Secondly, a beneficiary is not responsible for the acts of a fraudulent trustee; a
principal may, however, be liable for a fraudulent agent.
 Finally, the trustee usually has positive duties to act, whereas the agent is more
generally given powers, rather than duties. But the two concepts are not mutually
exclusive: a trustee may in some circumstances act as an agent
 AGENCY DISTINGUISHED FROM OTHER RELATIONSHIPS
It is important to distinguish the legal concept of agency from the way in which the word ‘agent’ is
used in common speech or even in business and to note its distinction from certain other similar
relationships;

Selling agents

 Lamb v Goring Brick Co (1932)-the defendants were brick manufacturers who employed the
plaintiffs as ‘sole selling agents’ of materials produced by the defendants. The contract required
the plaintiffs to pay the defendants for all goods received each month whether they had been sold
by the plaintiffs or not. The Court of Appeal held that this was inconsistent with an agency
relationship, in which the agent would not be expected to pay for goods.

 FOREXAMPLE - Uganda Clays “agents” e.g., in Ntinda, Kasanga or Nateete - buying goods from
the manufacturer and then selling them to customers. In legal terms, the shop is a distributor
rather than an agent.

 Street shop agencies merely distributors and not agents within the meaning of the word agent.
 Employment

 Although it is common to talk of a principal employing an agent, an agent is

not necessarily an employee in the legal sense.
 An agent does not have the rights (for example, against ‘unfair dismissal’)
attaching to employment.
 An employee does not, from that status, have authority to deal with an
employer’s property and make contracts on his behalf in the way that an
agent can in relation to his principal.
 Some employees do, however, act as agents. Sales representatives, buyers
and shop assistants may all enter into contracts with third parties which bind
their employer. Similarly, a director of a company may be both an employee
and an agent
 It is important to remember that agency is a relationship, not a post.
 Bailment
 A bailee holds goods on behalf of the bailor, under instructions as to how
they are to be dealt with. Thus far, there may be an overlap with agency.
 But the bailee has no automatic power to affect the bailor’s legal relationship
with third parties. The duty of the bailee may simply be to hold the goods
and return them on request.
 A bailee may become an agent if given appropriate power by the principal
(for example, to sell the goods at the best price obtainable). There is,
however, no necessary connection between the two statuses.
 Types of agency

Various labels have been used to distinguish particular types of agent, thereby
indicating the extent or nature of an agent’s powers or duties. They are not
always of much significance in practice, but some of the most commonly used
are outlined below:
 General or special agent. ( A general agent is engaged to carry out
transactions which fall within the general area of a trade or business. A
managing director, or a partner, for example, will normally have the
authority to make a wide range of contracts on behalf of the company or
firm. A special agent will be appointed for a particular transaction and
have no authority beyond that.)
 The distinction is not, in fact, of much practical use. The concepts of
implied and apparent authority are more commonly used in modern
case law to define the scope of an agent’s responsibilities.
Mercantile agent – factors and brokers
Mercantile agent - means a person who in the ordinary course of his or her
business, has authority either to sell goods, or to consign goods for the
purposes of sale, or to buy goods or raise money on the security of goods- See
section 1 of The Contract Act.
Factors are given possession of the goods which are to be sold – as, for
example, when they are sent from abroad. Moreover, a factor may sell in his own
name, that is, on behalf of an undisclosed principal (Baring v Corrie (1818)).
Brokers, by contrast never take possession of goods and never sell in their own
name. Brokers simply negotiate to bring the parties together. The term broker is,
however, also used in relation to agents who are not mercantile agents, such as
stockbrokers or insurance brokers.
 Del credere agent

 A del credere agent may also be a mercantile agent. The primary

use of this type of agency is in relation to transactions for the sale
of goods overseas, where the principal has some doubts that the
third party will not pay.
 The del credere agent, in return for increased commission, agrees
to indemnify the principal if the third party defaults (Morris v
Cleasby (1816)).
 This type of agency is still used on occasion, despite the fact that
such situations will nowadays often be dealt with by means of
documentary credits or credit guarantees.
 Other types of agents

 bankers,
 solicitors/lawyers,
 directors of companies,
 partners in a partnership, etc.
 Commissions
CREATION OF AGENCY

Agency can be created in several ways and these include;

 By Express Agreement, S. 122(1) of the Contracts Act. This is where an agent is
expressly appointed by the principal.
 Agency by Implied Agreement, S. 122 (2) Contract Act. This kind of agency arises
through the operation of the law. The law implies its existence from the circumstances of
a particular case.
 Such agency may rise from estoppel and from holding out, and gives rise to; Agency by
Estoppel and Agency by Holding out.
 Agency by Necessity/ authority of agent in an emergency. This kind of agency is also
conferred by law. Section 124 of the Act provides that in an emergency, an agent has the
authority to do any act for the purpose of protecting a principal from loss, as would be
done by a person of ordinary prudence, under similar circumstances.
 AUTHORITY OF THE AGENT
The authority of an agent means his capacity to enter into a particular transaction and bind the
principal by such transaction. The agent can only bind the principal if he acts within the scope of his
authority.
 S.123 (1) of the Contracts Act states that an agent with authority to do an act has the
authority to do anything necessary to do the act, which is lawful.
 S. 123(2) provides that any agent with authority to carry on a business has the authority to do
anything necessary for carrying on the business or which is usually done in the course of
conducting the business.

 The scope of the agent’s authority may be of various kinds i.e.

 Express Authority
 Implied Authority
 Usual Authority
 Apparent or Ostensible Authority
Definition - actual authority
 The actual authority of an agent is determined by the agreement between the principal and the agent and is,
therefore, a matter of contract construction.

 It consists of: express actual authority, which is the authority expressly given to the agent by the principal implied
actual authority, which is the authority that can be implied into the agreement between the principal and the
agent.

 Express actual authority - is the authority which the principal expressly gives to the agent: for example, where the
agent is instructed to sell a particular property for the principal. This authority may be contained in documents
and/or conversation between the parties.

 In determining the express authority of an agent, the normal rules for construing contracts apply. (For a discussion
of express authority, see SMC Electronics Ltd v Akhter Computers Ltd [2001] 1 BCLC 433.)
 Actual authority of the agent

 The authority that an agent has to bind the principal is entangled with the
creation of the agency.
 If the principal and agent agree to the creation of the agency, that agreement
will embody the authority of the agent.
 In agency by estoppel, the representation of the principal establishes the
authority of the agent to bind the principal and defines the scope of that
authority (apparent or ostensible authority)
 The principal is bound only by those acts of the agent that are within the
scope of that agent’s authority.
 Jacobs v Morris [1902] 1 Ch 816, an agent had authority to make, draw,
sign, accept or indorse bills of exchange and sign cheques. He represented to
a third party, who took him at his word, that he also had authority to borrow. It
was held that the principal was not liable: there was no actual authority.
Implied (or incidental) actual authority
 It is important to recognize that implied authority cannot contradict express actual authority. Implied actual
authority is a way of filling in the gaps in order to make sense of the agency agreement.

 It is not a means of altering that agreement or of making it in some sense fairer. (Implied terms in contract law)

 The agent will have implied actual authority to do those things that are necessarily incidental to the execution of
the express actual authority.

 Do the powers expressly given by the principal to the agent enable the agent to carry out the specified task, or
can that task only be undertaken by implying the authority to do things in addition to those that are expressly
authorised?

 For example -Authorising an agent to enter into a contract to buy land carries implied actual authority to sign the
documents required under statute because the requirement for writing in such transactions means that without
such authority the agent would not be able to perform the task agreed (Rosenbaum v Belson [1900] 2 Ch 267).

 Bryant, Powis, and Bryant Ltd v Law Banque du Peuple [1891-94] All ER 1253, an agent, who had express actual
authority by power of attorney to buy or sell goods, charter vessels and employ agents and servants, did not have
implied actual authority to borrow money because this was not necessary to carry through the tasks that had
been expressly authorized.
Summary – Actual Authority

The actual authority of an agent is determined by the express agreement

(subject to contrary statutory or regulatory provisions) between the
parties (express actual authority) and any appropriate implications from
the surrounding circumstances (implied actual authority) that do not
contradict the express actual authority.
Apparent authority
 Third party dealing with an agent will not have knowledge of the terms of the contract between the agent and
principal and so will not know the scope of the agent’s actual authority.

 In ordinary business dealings the contractor at the time of entering into the contract can in the nature of things
hardly ever rely on the “actual” authority of the agent.

 The third party, therefore, relies on a perception of the authority of the agent as represented by the principal. The
representation creates an agency by estoppel.

 The principal is prevented or estopped from denying the existence of the agency. The representation will also
establish the scope of the agent’s apparent (or ostensible) authority.

 Apparent authority is ‘the authority of an agent as it appears to others.’ (Lord Denning Hely- Hutchinson v Brayhead
Ltd [1968]
An agency by estoppel arises where:
the principal (or someone acting with the actual authority of the
principal) represents to the third party that the agent is authorized to
undertake the transaction which the agent and the third party
subsequently conclude.
the agent does not purport to make the agreement as principal.
the third party is induced to enter into the transaction in reliance
upon the principal’s representation.
the third party alters their position to their detriment.
The principal may be bound to a third party even though:
the agent does not have actual authority, or the agency agreement
has ceased, or
the agent acts beyond the actual authority granted by the principal.
This is because the agency is based on estoppel and not the consent
of the principal, who may not have intended to create an agency.
Where someone is represented by the principal as having authority to
act as agent, that person will possess the usual authority of such
agents in spite of any restrictions imposed by the principal on the
agent (Hely-Hutchinson v Brayhead Ltd [1968] above
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd- Apparent Authority

K and H formed a company to buy and then sell some land. K, H

and a nominee of each were appointed directors. The articles of
association contained a power to appoint a managing director but
none was appointed. K instructed F, a firm of architects, to do work
in connection with the land, which they did. On an action by F for
their fees, it was held that since K was not the managing director
he had no actual authority to employ F, but he did have apparent
authority because, with the knowledge of the board of directors,
he had acted throughout the transaction as if he were managing
director and his action in engaging F was within the usual authority
of a managing director.
Representation by the principal
 In order to be bound by the apparent authority of the agent, the principal must have represented
to the third party that the agent had the necessary authority to conclude the transaction on
behalf of the principal and the third party must have a reasonable belief that the agent had such
authority.
 If the representation as to authority comes from the person purporting to be an agent (Nayyar & Others v
Sapte & Anor [2009] above at [134]), the principal will not be bound to the third party.

 Read ING Re (UK) Limited v R&V Versicherung AG [2006] EWHC 1544

 The representation may be by words or by actions.

 Does silence or inaction will not amount to a representation see Spiro v Lintern {1973}3 ALL ER 391
 Representation by the agent
In normal cases the agent will not be able to represent their own authority. (But there
are exceptions- (First Energy Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep 194; Reynolds (1991)) 110
LQR 21

Summary
 Where the principal (or an agent with actual or apparent authority) represents to
the third party that the agent is authorized to undertake the transaction and the
third party is induced to enter into the transaction in reliance upon that
representation, the principal will be bound.
 The principal will not be bound where the representation on which the third party
relied came from the agent undertaking the transaction, unless this agent had
authority to make representations on behalf of the principal.
Usual authority : Watteau v Fenwick

On the concept of Usual Authority – Read the

decision in Watteau v Fenwick [1893] 1 QB 346
 Agency by ratification
Section 130 (1) provides that where an act is done by one person on behalf of
another but without the knowledge or authority of that other person, the person on
whose behalf the act is done may ratify or disown the act.
Section 130 (2) states that, where the person on whose behalf an act is done, ratifies
the act, the same effects shall follow, as if the act was performed under his or her
authority. Section 131 provides that ratification may be express or implied by the
conduct of the person on whose behalf an act is done.
This occurs in two situations;
 Where a duly appointed agent exceeds his authority.
 A person having no authority purports to act as an agent.
Ratification
 The principal will be bound where it validly ratifies a transaction entered into by someone purporting either
to act as its agent when that person has not previously been appointed as such, or by someone
purporting to possess authority beyond that granted by the principal.

 Is this Apparent Authority. NO. Why? because the agent represents their own authority.

Requirements for valid ratification

 At the time of the relevant act, the agent must have intended to act on behalf of the principal.

 The purported agency must be revealed to the third party before the transaction is concluded.

 The third party must believe that the person with whom they are dealing has authority to act for another

 The principal must be competent to enter the contract at the time of the original act by the agent.

 The principal must also be competent at the time of ratification (Not an alien enemy)

 Ratification must occur within a reasonable time after the action of the purported agent.

 There are no formalities for a valid ratification, but it is essential that the principal must have intended to
ratify
Effect of ratification
Ratification puts the parties into the position they would have been in had
the act been authorized from the outset: ‘Ratification when it exists is
equivalent to a previous authority’ (Lord Lindley in Keighley, Maxsted & Co
v Durant [1901] AC 2.
Summary

Where an agent exceeds their authority or purports to act as agent but has
not been appointed as such, the person on whose behalf they purport to
act is not bound, unless that person ratifies.
In general, ratification puts the principal, agent and third party in the same
position as if the act had been undertaken with authority.
Agency of necessity
 Section 124 of the Contract Act provides that in an emergency, an agent has the authority to do any act
for the purpose of protecting a principal from loss, as would be done by a person of ordinary prudence,
under similar circumstances.

The agency of necessity may arise where certain conditions are fulfilled:

 P’s property is in A’s possession as the result of an existing legal relationship, such as a contract of bailment. This
excludes claims by strangers, such as someone who finds the goods

 A is unable to obtain instructions from the owner an emergency threatens the property; it is not sufficient for A to
show that P’s property is causing A hardship or inconvenience (Sachs v Miklos [1948] 2 KB 23)

 A takes action in good faith and that action is commercially reasonable, proportionate and in the interests of P
(Prager v Blatspiel, Stamp and Heacock Ltd [1924] 1 KB 566).

 It has been said that this agency of necessity derives from the peculiar position of the master of a ship and ‘affords
no analogy to the case of an ordinary agent’ (Hawtayne v Bourne [1841] 7 M & W 595 at 599, Parke B).
Capacity of Principal and an Agent

 The general rule is that whatever a principal is competent to do personally

may be delegated to an agent. Conversely, a principal cannot authorize an
agent to do an act that the principal is not competent to undertake: e.g. an
enemy alien cannot authorize an agent to undertake any act within the
jurisdiction (Boston Deep Sea Fishing and Ice Co Ltd v Farnham
(Inspector of Taxes) [1957] 1 WLR 1051).
Where the principal’s ability to enter into a contract is qualified by age, the
agent’s capacity is also qualified. The principal, on acquiring the necessary
capacity, can avoid a contract made by the agent. The agent’s capacity is
terminated by the death of the principal or, where the principal is a company,
liquidation or winding-up.
Since the agent is acting for the principal, the capacity of the agent to enter the
particular transaction on the agent’s own behalf is, generally, irrelevant.
 Anyone can appoint an agent, but the agent’s competence to engage in transactions is restricted by the
competence of the principal. The reverse is, generally, not true: an agent can undertake transactions on behalf of
the principal that would be outside the agent’s personal capacity.

‘Actual authority and apparent authority are quite independent of one another. Generally they co-exist and
coincide, but either may exist without the other and their respective scopes may be different.’ Discuss.

(Read Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 (Sealy and Hooley, pp.118-20).