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Agency. Agency: A Tripartite Relationship. External relations. Internal relations. External relations. AUTHORITY OF AGENTS . The authority of an AGENT to affect the legal relations of a PRINCIPAL by or with respect to a contract with the THIRD PARTY. AUTHORITY OF AGENTS .
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Agency: A TripartiteRelationship Externalrelations Internalrelations Externalrelations
AUTHORITY OF AGENTS The authority of an AGENT to affect the legal relations of a PRINCIPAL by or with respect to a contract with the THIRD PARTY.
AUTHORITY OF AGENTS The scope of the subject: • It focuses ONLY on the external relations between the principal or the agent on the one hand and the third party on the other. • It is NOT concerned with the internal relations between the principal and the agent. • It is concerned ONLY with agency relationship based by contract, not by law or public/judicial authority decision.
AUTHORITY OF AGENTS The scope of the subject: • An agent MUST have the authority to contract. • The authority to contract – ANY act of an agent. • It is IRRELEVANT whether an agent acts in its own name or in that of itsprincipal - direct representation vs. indirect representation.
Directvs. Indirect • Direct representation -where an agent acts in the name of a principal. • Indirectrepresentation -where an agentacts onbehalf of a principal, or where the third party neither knows nor has reason to know that the personacts as an agent.
Direct v. Indirect Acting “onbehalfof a principal”: • according to theprincipal’sinstructions; • inpursuantwiththeprincipal’sinterests; • forthebenefitoftheprincipal; • usingthings, moneyandetc. oftheprincipal. Thelegalrelationsiscreatedbetweenagent andthethirdpartyinindirectrepresentation.
Thescopeoftheauthority 1. The broader the mandate conferred on the agent, the broader the scope of its authority. 2. Anagent’s authority, unless otherwise provided by the principal in itsauthorisation (forinstance, contractof mandate), is not limited to its express terms, but extends to all actsnecessary in the circumstances to achieve the purposes for which theauthority was granted. I l l u s t r a t i o n Owner B consigns to shipmaster A a cargo to be carried to country X within 10 days. With only three days of navigation left, the ship is damaged and must stop in the nearest port for repairs. A has implied authority to unload the cargo and consign it to another shipmaster to be carried to destination on another ship
Authorityofanagent The granting of authority to the agentby the principal is not subject to any particular requirement of a form. Theexpressed authority - the principal may conferthe authority totheagent inwritten (power of attorney) orin an oral statement or written communication or, in the case of a corporate entity, in a resolution by its board of directors. The implied authority - exists whenever the principal’s intention to confer authority on an agent can be inferred from the principal’s conduct or other circumstances of the case. I l l u s t r a t i o n Anemployer appointsanemployee to a sellerpositionintheshop. Theemployeehas implied authority to conclude contracts ofpurchaseand sale.
Disclosedagency v. Undisclosedagency • Disclosedagency– an agent acts within the scope of its authority and the third party knew or ought to have known that the agent was acting as an agent. • Undisclosedagency- an agent acts within the scope of its authority and the third party neither knew nor ought to have known that the agent was acting as an agent.
Disclosedagency • The acts of the agent shall directly affect the legal relations between the principal and the third party. • No legal relation is created between the agent and the third party. • Acting in the principal’s name not necessary, acting within the scope of theagent’s authorityisenough. • However, the acts of the agent shall affect only the relations between the agent and the third party, where the agent with the consent of the principal undertakes to become the party to the contract.
I l l u s t r a t i o n s • 1. Aisa sales representative for computer manufacturer B. Aaccepts the order placed by university C for the purchase of a number of computers. The sales contract directly binds B vis-à-vis C with the result that it is B, and not A, who is under an obligation to deliver the goods to C and who is entitled to payment by C.Forinstance, if it appearsthat one of the computers delivered is defective. The notice of such defects given by C to A directly affects B.
“Commission agent” • Commission agent –withconsentofthepricipaldealswith the third party in its own name without establishing any direct relation between the principal and the third party. • Inthiscasethe third party makes it clear that it does not intend to contract with anyone other than the agent. • The agent agrees that it alone and not the principal will be bound by the contract, thoughopenly acting on behalf of a principal. • Oncethe agent has acquired its rights under the contract with the third party, it will transfer them to the principal.
Intermediaries not acting in the name of a Principal • (1) Where an intermediary acts: • (a) on instructions and on behalf, but not in the name, of a principal, or • (b) on instructions from a principal but the third party does not know and has no reason to know this, • the intermediary and the third party are bound to each other. • (2) The principal and the third party are bound to each other only under Intermediary’s Insolvency or Fundamental Non-performance.
I llustrations 1. Dealer B, expecting a substantial increase in the price of wheat, decides to purchase a large quantity of wheat. B, wishing to remain anonymous, entrusts commission agent A with this task. Even though supplier C knows that A is purchasing on behalf of a principal, the purchase contract is binding on A and C and does not directly affect B’s legal position. 2. Confirming house A, acting on behalf of overseas buyer B, places an order with supplier C for the purchase of certain goods. Since C, who does not know B, insists on A’s confirmation of B’s order, A accepts to be held liable itself vis-à-vis C. Even though C knows that A is purchasing on behalf of B, the purchase contract is binding on A and C and does not directly affect B’s legal position. 3. Dealer B instructs agent A to purchase a certain quantity of oilon its behalf. When A is about to conclude the contract withsupplier C, the news arrives that the oil producing countries intendto reduce production substantially. A, expecting a rise in oil prices,decides to purchase the oil on its own behalf and enters into thecontract with C as the only other party. In so doing A has ceased toact as agent for the principal and the consequences of its acts are nolonger governed by this Section
Undisclosedagency • The acts of the agent shall affect only the relations between the agent and the third party. • No legal relation is created between the principal and the third party. • To avoidthattheexpressionof actingonbehalfof principal is necessary, acting within the scope of theagent’s authorityisnotenough. • However, where such an agent, when contracting with the third party on behalf of a business, represents itself to be the owner of that business, the third party, upon discovery of the real owner of the business, may exercise also against the latter the rights it has against the agent.
Agent acting within thescopeofitsauthorityv.Agent acting without or exceeding its authority • Where an agent is acting within its authority, its acts bind the principal and the third party directly to each other. The agent itself is not bound to the third party. • Where an agent acts without authority or exceeds its authority, its acts do not affect the legal relations between the principal and the third party. • An agent, though acting withoutauthority or exceeding its authority, may bind the principal and thethird party to each other: The principal ratifies the agent’s actorthereisan apparent authoritysituation.
I l l u s t r a t i o n 1. Principal B authorises agent A to buy on its behalf a specific quantity of grain but without exceeding a certain price. A enters into a contract with seller C for the purchase of a greater quantity of grain and at a higher price than that authorised by B. On account of A’s lack of authority, the contract between A and C does not bind B, nor does it become effective between A and C.
Apparentauthority • A person is to be treated as having granted authority to an apparent agent if the person’s statements or conduct induce the third party reasonably and in good faith to believe that the apparent agent has been granted authority for the act performed by it. • A principal, whose conduct leads a third party reasonably to believe that the agent has authority to act on its behalf, is prevented from invoking against the third party the lack of authority of the agent and is therefore bound by the latter’s act. • It isthethirdpartyright to useor to usenorapparentauthoritydoctrine.
I l l u s t r a t i o n s 1. A, a manager of one of company B’s branch offices, thoughlacking actual authority to do so, engages construction company Cto redecorate the branch’s premises. In view of the fact that abranch manager normally would have authority to enter into such acontract, B is bound by the contract with C since it was reasonablefor C to believe that A had actual authority to enter into thecontract. 2. Chief Financial Officer of company B, though lackingauthority to do so, has, with the acquiescence of the Board ofDirectors, repeatedly entered into financial transactions with bankC on behalf of B. On the occasion of a new transaction whichproves to be disadvantageous to B, B’s Board of Directors raisesagainst C the objection of A’s lack of authority. C may defeat thisobjection by claiming that B is bound by A’s apparent authority toenter into the financial transaction on B’s behalf.
Ratification by Principal • Originalauthorisation v. Subsequentauthorisation • Where a person acting as an agent acts without authority or outside its authority, the principal may ratify the agent's acts. • Theactofratificationproduces the same effects to anactsofanagentas if it had initially been carried out with authority. • The third party may by notice to the principal specify a reasonable period of time for ratification. If the principal does not ratify within that period of time it can no longer do so. • If, at the time of the agent’s act, the third party neither knew nor ought to have known of the lack of authority, it may, at any time before ratification, by notice to the principal indicate its refusal to become bound by a ratification • Upon ratification, the agent's acts are considered as having been authorised, without prejudice to the rights of other persons.
I l l u s t r a t i o n s • A, a manager of one of company B’s branch offices, though lacking actual authority to do so, engages construction company C to redecorate the branch’s premises. In view of the fact that a branch manager normally would have authority to enter into such a contract, B is bound by the contract with C since it was reasonable for C to believe that A had actual authority to enter into the contract.
Liability of agent acting without orexceeding its authority • An agent that acts without authorityor exceeds its authority is, failing ratification bythe principal, liable for damages that will placethe third party in the same position as if theagent had acted with authority and not exceededits authority. • However, the agent is not liable if thethird party knew or ought to have known thatthe agent had no authority or was exceeding itsauthority.
Conflict of interests (1) If a contract concluded by an agentinvolves the agent in a conflict of interests withthe principal of which the third party knew orought to have known, the principal may avoidthe contract. (2) However, the principal may not avoidthe contract (a) if the principal had consented to, orknew or ought to have known of, the agent’sinvolvement in the conflict of interests; or (b) if the agent had disclosed the conflictof interests to the principal and the latter had notobjected within areasonable time. The principal loses its right to avoid thecontract if it has given its prior consent to the agent’s acting in asituation of conflict of interests, or at any rate knew or ought to haveknown that the agent would do so.
I l l u s t r a t i o n s 1. Solicitor A is requested by foreign client B to purchase on itsbehalf an apartment in A’s city. A buys the apartment client C hasrequested A to sell on its behalf. B may avoid the contract if it canprove that C knew or ought to have known of A’s conflict ofinterests. Likewise, C may avoid the contract if it can prove that Bknew or ought to have known of A’s conflict of interests 2. Sales agent A, requested by retailer B to purchase certaingoods on its behalf, purchases thegoods from company C in whichA is a majority shareholder. B may avoid the contract if it canprove that C knew or ought to have known of A’s conflict of interests.
I l l u s t r a t i o n s 3. Client B instructs bank A to buy on its behalf one thousand shares of company X at the closing price of day M on the stock exchange of city Y. Even if A sells B the requested shares from outof those it has in its own portfolio, there can be no conflict of interests because B’s mandate leaves A no margin for manoeuvre. 4. A, Chief Executive Officer of company B, has authority to appoint the company’s counsel in the event of a law suit being brought by or against B. A appoints itself as B’s counsel. B may avoid the contract.
Sub-agency • An agent has implied authority to appoint a sub-agent to perform acts which it is not reasonable to expect the agent to perform itself. • The acts of a sub-agentlegitimatelyappointed by the agent bind the principal and the thirdparty to each other.
Terminationofauthority • The terminationof authority is not effectivein relation to the third party unless the third party knew or ought to have known of it. • Notwithstanding the termination of itsauthority, an agent remains authorised toperform the acts that are necessary to preventharm to the principal’s interests.
