Chapter Two: Chapter Two: AgencyAgency

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AgencyAgency

Principal Agent

Third Party

Relationships between:Relationships between:•Agents and Principals. Agents and Principals. •Agents and the Third PartiesAgents and the Third Parties•Principals and the Third PartiesPrincipals and the Third Parties

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AgencyAgency Agency Agency Commercial Law Commercial Law contractualcontractual or or quasi-contractualquasi-contractual

tripartite set of relationshipstripartite set of relationships A A principalprincipal explicitly or implicitly, explicitly or implicitly,

authorises the agent to work under authorises the agent to work under his control and on his behalf. his control and on his behalf.

AgentAgent acts on behalf of Principal acts on behalf of Principal to create a legal relationship to create a legal relationship a a Third Party. Third Party. negotiate negotiate contractual contractual

relationship. relationship.

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The ConceptThe Concept:: RightsRights + + liabilitiesliabilities of a Principal + an Agent of a Principal + an Agent

reflect commercial needs & legal reflect commercial needs & legal realities. realities.

In any business:In any business: one person to maintain a growing one person to maintain a growing

business. business. A corporationA corporation is a fictitious legal person is a fictitious legal person

Hence, independent people are contracted Hence, independent people are contracted by businesses to act by businesses to act on behalf ofon behalf of them. them.

Principals are Principals are liableliable under the contracts under the contracts made by the Agentmade by the Agent So long as the So long as the Agent followed the instructions Agent followed the instructions

ResultResult the same deal as if the Principal the same deal as if the Principal had done it directly.had done it directly.

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Innocent Third PartiesInnocent Third Parties approached by an approached by an ostensible agent. Third party deals in good ostensible agent. Third party deals in good faithfaith relying on the representation of relying on the representation of authority. authority.

In commercial world In commercial world it is not cost- it is not cost-effective to check that everyone has the effective to check that everyone has the authority to act for another actually has authority to act for another actually has that authority. that authority.

If it appears later that the alleged agent If it appears later that the alleged agent was acting without the consent of the was acting without the consent of the PrincipalPrincipal the the AgentAgent will usually be held will usually be held liableliable. .

This commercial necessity has ledThis commercial necessity has led the the creation of a body of law (Agency)creation of a body of law (Agency)

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PrincipalPrincipal Principal is a “Principal is a “person, fictitious or otherwise, person, fictitious or otherwise,

who who authorisesauthorises an agent to act to create one or an agent to act to create one or more legal relationships with a third partymore legal relationships with a third party”. ”.

MerchantsMerchants professionals professionals trade trade profit. profit. A wholesale merchants A wholesale merchants between producer between producer

and retail merchants. and retail merchants. A retail merchant or retailor A retail merchant or retailor

A merchant classified A merchant classified inin pre-modernpre-modern societies. societies. High (achieving titles like merchant prince) High (achieving titles like merchant prince) Low, such as in Chinese culture, profiting Low, such as in Chinese culture, profiting

from "mere" tradefrom "mere" trade

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In the US, "merchant" is defined as “In the US, "merchant" is defined as “any person any person while engaged in a business or professionwhile engaged in a business or profession”” or or ““a seller who deals regularly in the type of a seller who deals regularly in the type of goods soldgoods sold.” .”

A merchant account is a A merchant account is a special account special account to to allow a business to accept allow a business to accept credit cardscredit cards + other + other forms of payment cards.forms of payment cards.

BusinesspersonBusinessperson businessman or businesswomanbusinessman or businesswoman generic term for “ generic term for “someone who is someone who is employed at, usually, a employed at, usually, a profit-oriented profit-oriented enterpriseenterprise, or involved in the manegement of a , or involved in the manegement of a companycompany.” .”

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AgentAgent Agent is a “Agent is a “person who is person who is authorisedauthorised to act on behalf to act on behalf

of the principal to create a legal relationship with a of the principal to create a legal relationship with a third partythird party”. ”.

Classes of Agents:Classes of Agents: Universal agentUniversal agent holds holds broad authority broad authority

e.g. e.g. power of attorney power of attorney (is a legal document (is a legal document whereby a person gives another the power to take whereby a person gives another the power to take decisions with regard to their financial affairs and/or their decisions with regard to their financial affairs and/or their health and personal welfare)health and personal welfare)

or professional relationship as lawyer with client or professional relationship as lawyer with client General agentGeneral agent holds holds limited authority limited authority

conduct a series of transactions over a continuous conduct a series of transactions over a continuous period of timeperiod of time

Special agentSpecial agent is authorised to conduct either a is authorised to conduct either a single transaction single transaction oror a specified series of transactions over a limited a specified series of transactions over a limited

period of time. period of time.

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The Authority of the The Authority of the AgentAgent

The Principal's The Principal's wordswords or or conductconduct reasonably causereasonably cause the Agent to the Agent to believe that he is authorised to believe that he is authorised to act. act. Expressed in a contract Expressed in a contract Implied by words or acts Implied by words or acts

reasonable for the person to reasonable for the person to assume the power of an agent. assume the power of an agent.

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First: Actual AuthorityFirst: Actual Authority::

1.1. If it is If it is clearclear the Principal gave actual the Principal gave actual authority authority all agent's actions will bind all agent's actions will bind the Principal. the Principal.

If the Agent acts If the Agent acts fraudulently for his own for his own benefit benefit will bind the Principal unless will bind the Principal unless the third party was aware. the third party was aware.

2.2. If there is If there is no contractno contract but the but the Principal'sPrincipal's words or conduct words or conduct reasonablyreasonably led the led the third third partyparty to believe that the Agent was to believe that the Agent was authorised to act then the Principal will be authorised to act then the Principal will be bound. (bound. (take care of the customertake care of the customer))

3.3. If what the If what the AgentAgent proposes to do is proposes to do is reasonably necessary to accomplish an reasonably necessary to accomplish an actually authorised transaction, then the actually authorised transaction, then the Principal will be bound.Principal will be bound.

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Second: Apparent or Second: Apparent or Ostensible AuthorityOstensible Authority

If the Principal's words or conduct leads a If the Principal's words or conduct leads a reasonable reasonable personperson in the Third Party’s position to believe that in the Third Party’s position to believe that the Agent was authorised to act the Agent was authorised to act

1.1. AppointingAppointing the Agent to a position which carries with the Agent to a position which carries with it agency-like powers it agency-like powers

Those who know of the appointment Those who know of the appointment entitled to entitled to assume apparent authority assume apparent authority of occupying such a of occupying such a position. position.

2.2. If a Principal creates the If a Principal creates the impressionimpression that an Agent is that an Agent is authorised but there is authorised but there is no actual authorityno actual authority, (, (complement complement

of the agent for his previous dealsof the agent for his previous deals)) Third partiesThird parties are protected so long as they have are protected so long as they have

acted reasonably acted reasonably "Agency by "Agency by Estoppel" " the the Principal cannot deny the grant of authority if Principal cannot deny the grant of authority if third parties have changed their positions in third parties have changed their positions in reliance on the representations made. reliance on the representations made.

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>?????>?????Agency by EstoppelAgency by Estoppel

““Legally binding agency relationship that Legally binding agency relationship that may arise where, in fact, no formal agency may arise where, in fact, no formal agency agreement is in effect. A principal may give agreement is in effect. A principal may give an appearance of agency relationship. In an appearance of agency relationship. In such cases, the existence of an agency may such cases, the existence of an agency may be presumed, and the principal may be be presumed, and the principal may be bound by the acts of the agent performed bound by the acts of the agent performed on the principal's behalfon the principal's behalf.” .”

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Third: Authority by Virtue Third: Authority by Virtue of a Position Heldof a Position Held

The The purposepurpose is to deter fraud and other harms to is to deter fraud and other harms to individuals dealing with agents individuals dealing with agents

1.1. PartnersPartners have apparent authority to bind the other have apparent authority to bind the other partners in the firmpartners in the firm Joint and several liabilitiesJoint and several liabilities

2.2. CorporationsCorporations executives and senior employees executives and senior employees with decision-making authority with decision-making authority by virtue of their by virtue of their declared position declared position have apparent authority to have apparent authority to bind the corporation. (even if there is no authority)bind the corporation. (even if there is no authority)

3.3. The The PrincipalPrincipal may implicitly or explicitly ratify a may implicitly or explicitly ratify a transaction and accept liability transaction and accept liability e.g. the principal failure to notify third parties of e.g. the principal failure to notify third parties of

the Agent's lack of authority the Agent's lack of authority is an implied is an implied ratification to those transactions +++ an implied ratification to those transactions +++ an implied grant of authority for future transactions of a grant of authority for future transactions of a similar nature.similar nature.

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LiabilitiesLiabilities::

First: Liability of Principal to First: Liability of Principal to AgentAgent::

The Agent acts within The Agent acts within the actual the actual authority authority the Principal must the Principal must indemnify the Agent for indemnify the Agent for paymentspayments made during the course of the made during the course of the

relationship relationship expressly authorised or expressly authorised or merely necessary in promoting the merely necessary in promoting the

Principal’s businessPrincipal’s business1414

Second: Liability of Agent Second: Liability of Agent to Principalto Principal::

Agent acts Agent acts withoutwithout (actual) (actual) authorityauthority +++ the +++ the Principal is bound towards Principal is bound towards third party. third party.

In this case, the Agent (has In this case, the Agent (has apparent authority) apparent authority) is is liable to indemnify the Principal liable to indemnify the Principal for any resulting loss or damage.for any resulting loss or damage.

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Third: Liability of Agent and Third: Liability of Agent and Principal to Third PartyPrincipal to Third Party::

Principal Liability:Principal Liability: The The AgentAgent has (actual or apparent) authority has (actual or apparent) authority

will will notnot have liability have liability so long as so long as 1.1.The transactions agreed within the The transactions agreed within the

authorityauthority2.2.The agency was revealed The agency was revealed 3.3.The identity of the Principal was revealed The identity of the Principal was revealed

Agent Liability: Agent Liability: The The PrincipalPrincipal is is notnot bound if the Agent has bound if the Agent has

no authorityno authority The ostensible The ostensible AgentAgent is is liableliable to the Third to the Third

Party for Party for breachbreach of the implied warranty of of the implied warranty of authority.authority.

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DutiesDuties::

First: Principal Duties: First: Principal Duties: Must make a full disclosure of all Must make a full disclosure of all

informationinformation relevant to the relevant to the transactions transactions the Agent is the Agent is authorised to negotiateauthorised to negotiate

Pay the Agent either a Pay the Agent either a prearranged prearranged commissioncommission, or a , or a reasonable reasonable feefee established after established after the fact.the fact.

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Second: Agent DutiesSecond: Agent Duties:: LoyaltyLoyalty to the Principal to the Principal involves: involves:1.1. Not to accept Not to accept new obligationsnew obligations that are that are

inconsistentinconsistent with the duties owed to the Principal. with the duties owed to the Principal. Agents can Agents can representrepresent more than one Principal more than one Principal

(conflicting or potentially conflicting) only with (conflicting or potentially conflicting) only with full and timely disclosurefull and timely disclosure where the different agencies are based on a where the different agencies are based on a

limited form of authority to limited form of authority to preventprevent a situation a situation where the Agent's loyalty to any one of the where the Agent's loyalty to any one of the Principals is Principals is compromisedcompromised. .

AgreementAgreement Principal + Agent may Principal + Agent may identify identify specific types of activities that will not breach specific types of activities that will not breach the loyalty the loyalty (activities) will bind the (activities) will bind the Principals. Principals.

2.Not to make a private profit or unjustly enrich 2.Not to make a private profit or unjustly enrich himself from the agency relationship. himself from the agency relationship.

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TerminationTermination::An Agent's authority An Agent's authority can becan be terminated terminated at any timeat any time The The Indian Contract ActIndian Contract Act a variety of ways: a variety of ways:1.1. The The businessbusiness of agency being completed of agency being completed 2.2. By the By the agentagent renouncing the business of renouncing the business of

agency agency 3.3. By the By the principalprincipal being adjudicated insolvent being adjudicated insolvent 4.4. By theBy the principal principal revoking the agency – revoking the agency –

However, principal cannot revoke an However, principal cannot revoke an agency agency coupled with interestcoupled with interest of the agent in the of the agent in the subject-matter of the agencysubject-matter of the agency

e.g., where the goods are consigned to an e.g., where the goods are consigned to an agent for sale, to recoup himself from the sale agent for sale, to recoup himself from the sale proceeds, proceeds, in such a case, the principal in such a case, the principal cannot revoke the agent’s authority till the cannot revoke the agent’s authority till the goods are actually sold. goods are actually sold.

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Principal cannot revoke the agent’s authority after it has been Principal cannot revoke the agent’s authority after it has been partly exercisedpartly exercised

Fixed Period AgencyFixed Period Agency: the principal and the agent : the principal and the agent cannot terminate the agency before the time expired, cannot terminate the agency before the time expired, except for except for sufficient causesufficient cause. . disobedience of lawful orders, and rude or insulting disobedience of lawful orders, and rude or insulting

behaviour has been held to be sufficient cause.behaviour has been held to be sufficient cause. Reasonable Reasonable noticenotice has to be given by one party to has to be given by one party to

the other. the other. If any of them terminated before time If any of them terminated before time will be will be

liable to compensate the other for the loss caused liable to compensate the other for the loss caused to him. to him.

The termination takes The termination takes effecteffect to the agent from the to the agent from the time it becomes known to him === the same to third time it becomes known to him === the same to third party, until the termination is known to them.party, until the termination is known to them.

The revocation or renunciation of an agency may be The revocation or renunciation of an agency may be made made expresslyexpressly or or impliedlyimpliedly by conduct. by conduct.

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Agency and PartnershipAgency and Partnership:: States are not consistent on the nature of a States are not consistent on the nature of a

partnership. partnership. Some states opt for the partnership Some states opt for the partnership natural natural

personspersons joined the firm. joined the firm. In English lawIn English law, a partner is the agent of the other , a partner is the agent of the other

partnerspartners Others treat the partnership as a Others treat the partnership as a business entitybusiness entity

vest the partnership with a separate legal vest the partnership with a separate legal personality. personality. In In Scots lawScots law a partner is the agent of the a partner is the agent of the

partnership. partnership. In English law a partner who acts within the scope In English law a partner who acts within the scope

of his authority will bind the partners of his authority will bind the partners even if even if that implied authority has been revoked or limited that implied authority has been revoked or limited unless the Third Party knows that the authority unless the Third Party knows that the authority has been compromised has been compromised ( (notice of the notice of the limitationlimitation))

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The other partners or the firm (Principal) and Third Parties The other partners or the firm (Principal) and Third Parties are entitled to assume that the Principal has been are entitled to assume that the Principal has been informed of all relevant information. informed of all relevant information.

Problems Problems when one partner acts when one partner acts fraudulently or fraudulently or negligentlynegligently and causes loss and causes loss to clients of the firm. to clients of the firm.

If the partner is acting against the interests If the partner is acting against the interests of the firm of the firm There is more likely to be There is more likely to be liability in liability in torttort (to third party) (to third party)

In most states, a distinction is drawn between (knowledge In most states, a distinction is drawn between (knowledge of the firm's general business activities) and the of the firm's general business activities) and the (confidential affairs) as they affect one client. (confidential affairs) as they affect one client.

in most jurisdictions, the Third Party can in most jurisdictions, the Third Party can sue the partnership or the individual sue the partnership or the individual partners partners their liability is their liability is joint and joint and severalseveral..

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BrokerageBrokerage BrokerageBrokerage is considered as a division in is considered as a division in

commercial law. commercial law. Brokers proceed to bring parties together in Brokers proceed to bring parties together in

order to reach an agreement.order to reach an agreement. He is not a He is not a partyparty in the transaction in the transaction

Broker mediates between individuals or Broker mediates between individuals or corporations for a corporations for a commissioncommission to be paid to be paid from the proceeds of the contract.from the proceeds of the contract. If the transaction is not reached, the If the transaction is not reached, the

broker would not receive a commission. broker would not receive a commission. Broker does not Broker does not concludeconclude the deal on behalf the deal on behalf

of his client of his client He is not responsible for the implementation He is not responsible for the implementation

of the contract (of the contract (no liabilityno liability) ) 2323