Agency

What is an Agency?

Agents are those who act on behalf of others. They do commercial transactions acting with the scope of the authority that has given on them whether expressly or by implication. They do it for the principle to make a contract with a third party. Once principle and third-party form contract the agent is no longer part of the scenario. The only person who may sue is the principal, and the only person who can be sued is the principal.  Lord Alverstone CJ once defined an agent as ‘any person who happens to act on behalf of another’ (The Queen v Kane [1901] 1 QB 472). For example, a teaching institution asked the teacher to teach the students. Here, teaching institution is the principle, the teacher is the agent and students are the third parties. He may have indemnification against the third party or the principle. Generally, agents are entitled to be indemnified for all liabilities reasonably incurred in the execution of the agents´ authority. The agency is created by the actual authority which is express and implied authority, apparent authority which is the representation by the principal to the third party and when the principal ratifies.

 

What is meant by the Actual Authority of an Agent? Explain with example.

Actual authority includes express authority and implied authority. Express actual authority occurs when the principle expressly by words gives the agent the authority or permission to do something for the principle and the agent agrees. In Aviva Life & Pensions UK Ltd v Strand Street Properties Ltd [2010] EWCA Civ 444 at 54, the agent is instructed to sell a particular property for the principal. This authority may be contained in documents and conversations between the parties. For example, a teaching institution has instructed the teacher to teach the students. So, the teaching institution has given the teacher the authority to teach and that is the express actual authority. If the instruction from the principal to the agent is not clear then the reasonable interpretation will not be in breach in the mandate. However, the agent should not do more than the instructions and there is modern communication available to sort out the problem.

 

The agent uses implied actual authority to 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 necessarily incidental to the execution of the express actual authority. For example, a teaching institution gives the authority to the teacher to teach the student that’s the express actual authority and teacher will do necessary things like providing notes, extra time, the reward for a test that is implied actual authority to complete the express actual authority. In Rosenbaum v Belson [1900] 2 Ch 267 an agent was given authority to get into a contract of buying land so the implied actual authority is signing the document that is required to buy the land and without such authority, the agent would not be able to perform the task agreed.

 

What does it mean when the law says that an implied authority cannot contradict express authority? Examples with case law.

Implied authority cannot contradict express authority means the agent cannot alter the agreement of the principle or making it in some fairer. If principle has limited an agent’s express authority, then the fact that the agent cannot do something which is irrelevant. For example, a teaching institution gives the photocopier the authority for printing, the photocopier implied authority is to buy ink, edit paper, maintenance printer, and so on. Now the photocopier takes a short-term loan to buy a new printer for printing more students which is irrelevant because the teaching institute did not give the implied actual authority and he cannot change the agreement. In Bryant, Powis, and Bryant Ltd v Law Banque du Peuple [1891-94] All ER 1253, an agent, who had express actual authority 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. It is difficult to take a loan in a company as it requires every owner's permission. The agent could communicate with the principle to sort out the problem and the principle may pay the money.

 

As expressed by Lord Denning apparent authority is ‘the authority of an agent as it appears to others.’

As expressed by Lord Denning apparent authority is ‘the authority of an agent as it appears to others. In order to understand we first need to know what is apparent authority. Apparent authority occurs when principle gives no authority expressly or impliedly to the agent but the agent can still be legally bound to the third party. Third-party will have no knowledge of the term of the contract and agent’s actual authority. Apparent authority arises when it appears as the agent has actual authority, there is a representation by the principle as the principle might have said or did and the third party relies on the representation and get into the contract by believing that the agent is acting on behalf of the principle. The representation creates an agency by estoppel. An agency by estoppel arises the principle that represents the third party that the agent is authorized and the agent does not purport to make the agreement as a principle. The principal is estopped from denying that the agent has this authority. In Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] one director of a Buckhurst, its agent, hired Freeman and Lockyer as architects for their Buckhurst Park Estate project. Buckhurst later refused to pay their invoices, saying that the director was not authorized to enter into the transaction which commissioned the architects. The director had acted as the managing director of Buckhurst and he did not have actual authority. The representation was made by the appointment of the director into his position, whose office would normally provide powers of authorization, the company had the power to appoint its own directors, the architects were induced into carrying out the work by the representation of the company that the director had authority and the company was not prohibited from entering into contracts with the architects. So, Buckhurst Park Properties (Mangal) Ltd was bound and had to pay the invoice. The principle is bound to a third party even though the agent does not have actual authority, agency agreement has ceased and the agent acts beyond the actual authority granted by the principal. In Nayyar & Others, v Sapte & Anor [2009] a person purporting to be an agent and represent that he has authority from principle. The principle will not be bound to the third party and the bogus agent will be liable for breach of an implied warranty of authority. The representation may be by words or by actions. When there is a duty to say something, silence or inaction may be a representation. In Spiro v Lintern case Linter’s wife wants to sell the house. Lintern said nothing and his silence amounted to represent that his wife had the authority to sell the house because Spiro had various expenses in contemplation of completion of the sale. When the third party knows that the agent does not have authority then the agent will not have apparent authority. In Armagas v Mundogas, Armaga's apparent fraud, an agent purported to conclude an agreement leasing a ship back from the principal for a period of 3 years. The agent only had actual authority to conclude an agreement lasted for 1 year. The agent claimed that he had obtained specific authority for the transaction but the agent was appointed as the principal’s chartering manager. The agent’s title of ‘chartering manager’ did not bring with it the apparent authority to conclude the contract or represent specific authorization. The principle may not represent his authority. So, the principle was not bound.

What does it mean that an agent’s action has been ratified and what effect does it have on the Third Party?

An agent’s action has been ratified means principal retrospectively clothes his agent with authority and the law then proceeds on the basis that the agent had authority from the outset or beginning. It happens when an agent exceeds actual authority and he accepts an agreement without the authority. When the principle adopts the agent past act then the agent had authority from the beginning which is ratification. Ratification is a means by which the agency relationship is created retrospectively. When the third party had an agreement to the transaction and ratification should be accepted. Before the transaction is concluded the agency must be revealed to the third party. In Keighley, Maxsted & Co v Durant [1901]case an agent got into a contract and purchase wheat in his own name without revealing to the principle. There will be no ratification where the agent makes a contract as a principle. A contract on behalf of an undisclosed principal cannot be ratified, it is complete upon signing. There will be no contract until the principal has approved it. The third-party must believe that the person with whom they are dealing has the authority to act for another.

 

In Bolton Partner V Lambert's case, an agent of Bolton's partner accepted the authority without the principle authority. Lambert withdraws the offer and then the principle ratifies. The contract was binding on Lambert and the claimant entitled to specific performance. The agent is put in the same position as if he had the authority to do the act at the time the act was done by him. It is unfair for the third party because it allows the principle to choose whether or not to ratify. The third-party may hold the principle and then the principle declines to ratify which is even more unfair. So, the third party may bring an action for breach of warranty of authority against the agent because of loss. There is a limitation to ratification that the third party will give a reasonable time after the agent’s unauthorized acts. If the third party knows that the agent is unauthorized then the third party can give a reasonable time. If the principal does not ratify within such reasonable time the principle will lose the right to ratify. In Metropolitan Asylum Board v Kingham and Sons case the principal purported ratification one week after the agent’s contract entered into without authority to buy eggs and it was held too late. Ratification must not injure the third party and reasonable time will depend on the nature of the contract and circumstances.