ACCA F4: Chapter 5 - Agency Law

1 Definition of an agent An agent (A) is a person who is authorised to act for another (the principal (P)) in the making of legal relations with third parties.

1 Definition of an agent The resulting contracts are made between the principal and the third party, and not directly with the agent.

1 Definition of an agent - A director acts as an agent for his company - A partner acts as an agent for his partnership - An estate agent is appointed by a seller of a house to find a buyer - A travel agent is appointed by a holiday company to make bookings with customers

2 How the agency relationship arises - express agreement - implied agreement - by necessity - by ratification - by estoppel.

2 How the agency relationship arises This is where P actually appoints A as his agent. The agreement can be made orally or in writing

2 How the agency relationship arises This is where P has not expressly agreed that A should be his agent. However, the agreement can be implied from the parties’ conduct or relationship.

2 How the agency relationship arises 1) This requires four conditions to be satisfied: - P’s property is entrusted to A - an emergency arises making it necessary for A to act - it is not possible to communicate with P - A acts in the interest of P 2) Great Northern Railway v Swaffield (1874) Facts: There was a contract between the two parties whereby GNR agreed to transport the defendant’s horse to a particular railway station from where it would be collected. When no one arrived to pick it up, the station master, having tried unsuccessfully to contact the defendant, placed the horse in a stable overnight Held: GNR was entitled to recover the costs of stabling because it had become the agent of the defendant by necessity

2 How the agency relationship arises 1) If a properly appointed agent exceeds his authority, or a person having no authority purports to act as an agent, the principal has no liability on that contract unless the principal ‘ratifies’ the contract. 2) The effect of ratification is to backdate A’s authority to act as agent. This requires P to - have the contractual capacity to make the contract - have been in existence both when the contract was made and at the date of ratification - be identified when the contract is made - be aware of all the material facts - clearly signify his intention to ratify the whole contract within a reasonable time 3) Kelner v Baxter (1866) Facts: The promoters of a company entered into a contract on behalf of a company before it was incorporated, to purchase some property. The other party was not paid Held: As the company did not exist at the time the contract was made, the company could not ratify the contract. The promoters were personally liable to the seller.

2 How the agency relationship arises 1) This arises where P implies that A is his agent even though he is not. He is then prevented or 'stopped' from denying A’s authority. 2) Freeman & Lockyer v Buckhurst Park Properties Ltd (1964) Facts: The defendant company had four directors, none of whom had been appointed as the managing director. One director effectively ran the business by himself and entered into a number of contracts with the claimants. On previous occasions, the board on behalf of the company had honoured the contracts and paid the claimants. However, on this occasion, the board refused to pay arguing that the director had no express authority to make the contract because he was not the managing director Held: Although the director had no express authority to make the contract, the director had acquired authority by estoppel. This was because by honouring similar contracts in the past, the company (as the principal) had given the impression that the director had the authority to make this sort of contract. The claimants had relied on this representation by continuing to deal with the director when purporting to act on behalf of the company.

3 Authority The powers that the agent has on behalf of the principal, and for which acts the principal is liable.

3 Authority - Express - Implied - Apparent

3 Authority This is authority that P has explicitly given to A

3 Authority An agent has implied authority to do things which: - are reasonably incidental to the performance of an expressly authorised act - an agent occupying that position would usually have authority to do - have not been expressly prohibited by P.

3 Authority 1) Such authority arises where A is held out by P as having authority 2) The representation by P may arise from: - the appointment of A to an office or position (in which case A has authority to do those things which are usually done by a person occupying that position) - previous dealings (allowing A to make contracts in the past is a representation that A has authority to continue to do so in the future). - However, a third party cannot rely on apparent authority when he knows of the lack of actual authority 3) Facts: The new owners of a hotel continued to employ the original owner as the manager. In the agency agreement the new owners ordered the agent not to buy certain items, including cigars. The manager still bought cigars from a third party. The owners then refused to pay for the cigars. Held: The purchase of the cigars was within the usual authority of a manager of a hotel. The contract was binding on the owners. (If a limitation on the usual authority is going to be effective, it must be communicated to the third party before any contract is made.)

4 Liability A principal is disclosed where the existence of the principal has been made known to the third party. It is not necessary for the principal to be identified to the third party.