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Anglo-American Business Law Chapter 3 Agency
Content • • • 1. Agency law 2. Partnerships 3. Corporations and legal personality 4. Company formations 5. Constitution of a company Why there are many types of corporations? • What is the reason that we study agent?
chapter 3 Agency • Learning Objectives: • to explain what agency is, how agency relationship is established and authority and liability to others. • Topic list • (1) Define the role of the agent and give examples of such relationships paying particular regard to partners and company directors. • (2) Explain how the agency relationship is established. • (3) Define the authority of the agent. • (4) Explain the potential liability of both principal and agent.
Exam guide • Requiring u to explain what agency is, how agency relationship is established and authority and liability to others. Agency Creation Principal Agent Authority of director
• Your adult son went to the bank to withdraw your deposit, with your identity card, your credit card and your password, without your permission actually. The bank gave your money to him. Could u recover your money from the bank? • A, an ex-sale manger was fired by B company and he regarded this fact to sign a contract with C, who didn’t know this fact. Need B be liable for this contract?
• Under the law of agency, if a person is injured in a traffic accident with a delivery truck, the truck driver's employer may be liable to the injured person even if the employer was not directly responsible for the accident. That is because the employer and the driver are in a relationship known as principal-agent, in which the driver, as the agent, is authorized to act on behalf of the employer, who is the principal.
1. Role of agency and agency relationships • The law of agency allows one person to employ another to do her or his work, sell her or his goods, and acquire property on her or his behalf as if the employer were present and acting in person. • The P may authorize the A to perform a variety of tasks or may restrict the A to specific functions, but regardless of the amount, or scope, of authority given to the A, the A represents the P and is subject to the P's control. • More important, the P is liable for the consequences of acts that the A has been directed to perform.
• (1) What is A? • A is employed by P to perform tasks which the P cannot do or do not wish to perform themselves. • An agent (A) is a person who is appointed by another (P) to enter into a contract with a third party (TP). • (2) What is agency? • Agency is a relationship between 2 legal persons (the P and the A) in which the function of the A is to form a contract between his P and a TP.
• • NB: Characters of agency The A is on behalf of P; The P is responsible for this contract; The A should do no more than authority.
（3）Types of A • Partners, Promoters • Factors • Bankers • Auctioneers • Brokers • Estate agents (property)
Formation of agency By consent By ratification Express agreement Without consent Implied agreement By estoppel By operation of law (necessity ) Implied agreement
Formation of agency Means character Formation of agency with consent By express Express authority agreement By implied agreement Implied by relationship or conduct (Implied authority By ratification Formation of agency without consent Implied by particular position Implied agreement By estoppel if the P holds out to TP that a person is his A, this statement cannot be denied. By necessity emergency
2. Formation of agency • NB: generally, by mutual consent. This agreement does not have to be formal, or written. • (1) agency may be created in these ways: • (a) Express agreement: A is expressly appointed by the P. (Express authority)
(b) Ratification • A P may subsequently ratify an act of an agent retrospectively. P must (a) exist at the time when contract is made. Kelner v. Baxter (1866) (b) have contractual capacity. (c) have been made aware of all material facts. (ascertainment) (d) ratify the whole contract. (e) Ratify within a reasonable time.
• Notes: • The contract must be valid and legal. • Ratification must be communicated to the TP. • Note: the effective of Ratification • Once a contract has been ratified by the P, the effect is that as if the agency relationship had been expressly formed before the contract made by the agent took place.
Kelner v. Baxter (1866) • Facts: K was a promoter to a company to build and run a hotel. K made a contract as a. promoter to buy wine from B. goods were ordered by the proposed Hotel. K claimed to be an agent for the hotel and only the hotel should be liable. But the hotel disagreed. • Held: the company was not liable as it did not yet exist. However, the D who acted on behalf of the unformed hotel was held to be liable.
(2) Formation of agency without consent • (a) By implied agreement: • Mullens v Miller (1882) • It was held that an estate agent has implied authority to make representations and warranties relating to a property when conducting negotiations with a prospective purchaser.
Hely Hutchinson v Brayhead Ltd  • Facts: R，the chairman and CEO of Brayhead acted as its de facto managing director, but he had never been formally appointed to that position. Nevertheless, he purported to bind the company to a particular transaction. When the other party to the agreement sought to enforce it, the company claimed that the chairman had no authority to bind it.
• Issue: Was the D liable to indemnify the C based on representation made by R? Did R act within scope of authority is chair of B? • Decision: Although the director derived no authority from his position of the board he did acquire such authority from his position as CEO and thus the company was bound by the contract he had entered into on its behalf, as it was within the implied authority of a person holding such a position.
• (b) By estopple : Doctrine of Holding Out • (c) By necessity • In some rare situation, it may be necessary for a person to take action in respect of someone else’s goods in an emergency situation. • Conditions: • (i)the A must have no practical way of contacting the P to obtain instructions. • (ii)there must be some pressing need for action. (eg. If the goods is perishable) • (iii)the A must have acted bona fide (in good faith) • (iv)the action taken by A must have been reasonable and prudent.
(b)Conditions: • (i)the agency must have no practical way of contacting the principal to obtain instructions. • (ii)there must be some pressing need for action. (eg. If the goods is perishable) • (iii)the agent must have acted bona fide (in good faith) • (iv)the action taken by agent must have been reasonable and prudent.
Great Northern Railway Co v Swaffield (1874) • Facts: D arranged for a horse to be transported to himself care of a railway station owned by the C. The horse arrived at the station however D was not there to meet it. As the C could not contact D before nightfall and had no facilities to accommodate the horse, they sent it to a livery stable.
• Issue: Could the C recover from D the amount they paid the stable for the horse's accommodation? • Held: The C had acted reasonably in placing the horse in the stable and were entitled to recover the expenses (which were reasonable) from D.
3. Authority of the agent • (1)A P does not give the A unlimited authority to act on his behalf. • In order to bind a P, the A must have authority and the A must act within the limits of his authority from his P. • (2) There are different types of authority: express, implied and ostensible authority. They all can bind the P, if the contract is on the P’s behalf.
(3) Actual authority • (a) Express authority – authority specifically given to the agent by the P. • Between the A and the P, implied authority can never exceed express authority.
• (b) Implied Actual Authority – if A is appointed to a particular position that A has authority to do everything usual to that position. It might result in the A having more implied authority than the P might have consented to. • It is possible to restrict A's implied authority, but to be effective, the TP must know of the limitation.
• Watteau v Fenwick. • Fact: H owned a hotel. He sold it to the D, who retained him as manager. The licence continued to be held in his name, which remained over the door. The C supplied cigars to H, to whom alone they gave credit, believing him to be the owner. They had never heard of the D, who had forbidden H to buy cigars on credit. Upon learning that the D were the owners of the hotel the C sued them for the amount outstanding.
• Held: It was within the usual authority of a manager of a hotel to buy cigars on credit and D was bound by the contract, even though the manager had been told not to act in this way, since his restriction of usual authority had not been communicated.
(4) Apparent/Ostensible authority by estoppel The P has revoked the A’s authority but the TP doesn’t notice Of this
(i) by estoppel • ① Conditions: • The representation must be made to TP (by words/action/inaction) by P and P’s other A on the P’s behalf. • The TP must have relied on this representation. • The TP must make this contract with good faith.
② Effect: • Although the A has no actual authority, contracts are still binding between P and TP, as TP is protected by the 'appearance' of authority and P is stopped (or "estopped") from denying A's authority. • ⑤As far as TP are concerned, they are entitled to assume that the A has implied usual authority unless they know to the contrary. Watteau v Fenwick & Co  1 QB 346
• Spiro v Lintern  3 All ER 319 • A wife was asked by her husband to employ an estate agent to sell his house. The agents found a buyer and, acting on the wife’s instructions, a contract of sale was signed. Although the husband did not authorise the sale, he had taken no action when he discovered the facts. He later tried to deny a valid contract existed and the court estopped him from doing so.
• (ii) The extent of ostensible authority • It is not restricted to what is usual and incidental. The P may expressly or by inference from his conduct confer on the A any amount of ostensible authority. • (iii) Examples: companies
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd  2 QB 480 • Facts: The director in question managed the company's property and acted on its behalf and in that role employed the P architects to draw up plans for the development of land held by the company. The development ultimately collapsed and the P sued the company for their fees. The company denied that the director had any authority to employ the architects.
• The court found that, while he had never been appointed as managing director (and therefore had no actual authority, express or implied) his actions were within his ostensible authority and the board had been aware of his conduct and had acquiesced in it.
(5) Revocation of authority • A P can escape liability if the revocation has been communicated to the TP.
(6) Termination of agency • (a)By act of parties (e. g. notice, performance). • (b)By operation of law (e. g. death, bankruptcy). • by mutual agreementby the unilateral action of one of the partiesthrough frustrationdue to the death, insanity or bankruptcy of either of the parties. • NB: Termination brings the actual authority of the A to an end. • TP are allowed to enforce contracts made later by the ‘A’ until they are actively or constructively informed of the termination.
4. Relations between A and TP • (1) Liability of the agent for contracts formed • (a) An A contracting for his P within his actual or apparent authority generally has no liability on the contract and is not entitled to enforce it. • (b) There are circumstances when the A will be personally liable and can enforce it.
• (i) A intended to take personal liability. • (ii) Where it is usual business practice or trade custom for an A to be liable and entitled. • (iii) P was undisclosed (3 P wasn’t aware of agency). • (ⅳ)A is contracting on his own behalf not for a P. • (ⅴ)A contract by deed without power of attorney.
(c) The liability of A • If P is undisclosed, the A will • (i) Joint liability with P if TP was aware of agency; • (ii) separate liability if wasn’t aware of agency.
(c) Breach of warrant of authority • If an A contracts with a 3 P on behalf of a P, the A impliedly guarantees that the principal exists and has contractual capacity and that he has that person’s authority to act as his A. If such is not the case, the A is personally liable to 3 P for breach of warrant of authority (Yonge v Toynbee 1910). • If the A was not authorized to enter into the contract, the 3 P may bring a claim against the A for any damages that the 3 P may have suffered from the A’s lack of authority.
• Yonge v Toynbee 1910 • A solicitor was appearing in a court action for a client. Unknown to the solicitor, the client had become of unsound mind and therefore had no capacity - the solicitor's authority had therefore been terminated. • Held: He was liable to the plaintiffs for all their costs.
Appendix：Relationship with TP • (1) P’s rule: • P is liable for the TP for contracts formed by an A with actual or apparent authority. • A P is bound by acts of the A, even if they are fraudulent— under actual or apparent authority.
(2)A’s rule: • An A contracting for his P generally has no liability on the contract and is not entitled to enforce it. • Exceptions: • (a) A intended to take personal liability. • (b) P was undisclosed (3 P wasn’t aware of agency). • (c) A is contracting on his own behalf not for a P. • (d) A contract by deed without power of attorney. • (e) Joint liability with P if A undisclosed. • (f) Usual business practice for A to be liable.
★Payment by means of an A • If the A does not pay the TP, the P remains liable. • If the A absconds with money paid by the TP, then, • if the P is undisclosed, A sustains the loss; • if the P is disclosed, the A must have had authority to accept money or else the 3 P is liable.
Appendix: Duties & Rights of an A • • ★ Duties (1)Performance and obedience. (2)Reasonable care and skill. (3)Personal performance. (4)To be accountable. (5)No conflict of interest. (6)No secret profit.
Boston Deep Sea Fishing Co v Ansell 1888 • D was a director of C, employed on a fixedterm contract. D was also secretly a director of a boat-building company; he ordered many boats for C from this other company and obtained commissions from clients to whom he had given company contracts. C found out and dismissed him. They also sued to recover the lost commissions. • HELD : The dismissal was justified and D was required to pay the commissions he had received over to his employer.
★Rights • (1)Indemnity: The A has the right to be repaired expences and indemnified against losses and expences arising as part of his agency. • (2)Remuneration: The A has the right to be paid (if contractual). If the amount is not specified then a reasonable amount must be paid.
★ Where the P’s existence is not disclosed : • (a) the A can enforce the contract against the 3 P; • (b) the P can enforce the contract against the 3 P. • (c) the 3 P can choose to enforce the contract against the A or the P. • (d）the undisclosed P cannot ratify any contract made outside of the A’s actual authority; • (e) the P may be excluded from the contract if the 3 P had a special reason to contract with the A. • (f) the third party may not be bound by the contract if the A misrepresents the identity of the P.
Appendix: Effect of an agent acting without authority (actual, implied or apparent authority) • (1) The purported P will not be bound by the contract. • (2) There is no contract between A and 3 P as 3 P did not intend to deal with A personally. • (3) The A will be liable to TP and P for breach of warrant of authority.