1.0 INTRODUCTION
A commercial enterprise may use a variety of techniques to ensure that
its goods reach the intended market.' One is direct selling. The enterprise
contracts directly with the various buyers without going through any intermediary.
Another is agency. It is often convenient for the enterprise to appoint one or
more agents whose business it is to effect sales. This itself may be done in a
variety of ways. The agent may simply introduce prospective buyers to his
principal, leaving it to the latter to conclude the contract if he wishes.
Alternatively, the agent may effect the sale himself on behalf of his
principal, either contracting expressly as agent, with or without naming the
principal, or contracting in his own name as apparent principal. A third method
of selling is to appoint a commission agent whose role is to effect sales
without committing his principal to third parties in any way, even as
undisclosed principal, so that the agency is a purely internal mandate. A fourth
method is to appoint a distributor to buy the goods and resell them on his own
account. Yet another is consignment. The enterprise delivers the goods to the
consignee to hold in the first instance as bailee but on terms that the
consignee is to buy the goods if he notifies his intention to do so and that he
is deemed to have elected to buy them if he fails to return the goods within a
given time or otherwise adopts the prospective purchase transaction, typically
by selling the goods.
2.0 THE CONCEPT OF AGENCY
2.1 Agency defined
Agency is the relationship arising where one person, the principal (P),
appoints another, the agent (A), to bring about, modify or terminate legal
relations between the principal and one or more third parties (T).
(i) Sale through A as agent to T, with or without disclosure of P's
identity.
(ii) Sale by A as apparent principal but in reality as agent for an
undisclosed principal, P. The contract is between T and A but T may elect to
hold P liable and P may intervene to
enforce the contract.
(iii) Sale by A as true principal under a mandate from P ('commission
agency' or 'representation') with no relationship between T and P.
2.2 Agency and authority
Agency may therefore be regarded as a particular form of authority,
namely to create or affect legal relations between P and T. Authority to do
acts which are not intended to produce this result does not give rise to an
agency relationship.
3.0 SOURCES OF AGENCY LAW
It will be apparent from what has been said above that agency law has to
deal with three distinct relationships: between P and A; between P and T; and
between A and T. Any contractual relationship (e.g. between P and A, or between
A and T where A contracts in his own name) is governed by the terms of the
contract and general contract law and by particular principles of the common
law (including equity) relating to agency. Where A is a self-employed
commercial agent, relations between him and P are additionally regulated by the
EEC Directive on Commercial Agents, which significantly reduces the ability of
the parties to contract out of certain of their basic obligations under the
Directive.16 Contracts between P or A and T are governed by their terms,
general contract law and any common law and statutory provisions applicable to
the type of contract in question.
4.0 TYPES OF AGENT
An agent may be appointed to act in a specific transaction outside his
ordinary course of business (a 'special agent') or in transactions of a
designated class or generally (a 'general agent') so as to be within the
ordinary course of his business. It was at one time common to distinguish
between special (or ad hoc) agents and general agents, and though the utility
of the distinction has been doubted it has been applied by the House of Lords
for the purpose of determining the normal ambit of the doctrine of apparent
authority.
The Ocean Frost [1986] AC 717.
More significant is whether the agent has power to buy and sell in his
own name. A broker is normally expected to deal as such and not as a principal,
and if he buys in his own name his principal may be able to disclaim the
transaction; a factor may buy and sell both as agent and on his own account,
and the same is true of a market-maker as regards dealings in securities. A del
credere agent is one who guarantees to his principal that the third party will
perform his contractual obligations to the principal. A confirming house
performs the converse function of giving an assurance of performance to the
third party on behalf of its principal by adding its confirmation to the
principal's order, thus assuming the same responsibilities as the principal.
5.0 5.0 AUTHORITY
AND POWER OF AN AGENT
5.1 In general
The authority of an agent must be distinguished from his power. A transaction
entered into by A within the scope of his actual authority from P will, of
course, bind P. But P will also be bound if A acts within his apparent
authority. In such a case, though A does not have the right to enter into the
transaction on behalf of P, the law invests
him with the
power to commit
his principal to
the transaction.
5.2 Agency of necessity
A's power normally derives from some authority
conferred by P, but this is not necessarily so. In extreme cases, as where P's
property is at imminent risk and A has to take urgent action to save it and A
is unable to communicate with P or to obtain an adequate response to his
request for instructions, the law treats A as an agent of necessity to take the
necessary remedial action,
China Pacific SA v. Food Corp. of India [1982] AC 939 as where the master of a ship enters into a
salvage agreement with T on behalf of P to save P's cargo,
The Choko Star [1990] 1 Lloyd's Rep 516
or where A is in possession of perishables belonging to P and sells them
for P's benefit before they become rotten. Sachs v. Miklos [1948] 2 KB 23
It is clear that a distinction is to be drawn between cases where A has
an existing agency relationship with P but acts from necessity beyond his
express or implied authority and cases where there is no pre-existing agency
relationship at all. The law is reluctant to allow claims by the officious
intervener who, having no connection with the party on whose behalf he
intervenes, chooses of his own volition to take action on that party's behalf.
Such cases are controlled not only by
strict limits on the doctrine of agency of necessity but also by the general
principles of the law of restitution, which restrict recovery to situations
where P freely accepts the benefit officiously conferred upon him. The problem
is to know what constitutes officious behaviour for this purpose. Now that
English law recognizes a general principle of restitution based on unjust
enrichment there would be much to be said for subsuming agency of necessity
within a broader conceptual framework of remedies for unjust enrichment.
6.0 ACTUAL, APPARENT, AND USUAL AUTHORITY
An agent is said to have actual authority when what he does is in fact
authorized by his principal, whether expressly or impliedly. The implied
authority may be restricted by the terms of his instructions from his
principal, but a third party dealing with him without notice of the restriction
is still entitled to rely on his apparent authority. The difficult case is
where A, in concluding a transaction that would be within his usual authority
as agent, contracts in his own name without disclosing the existence of a
principal, so that the third party assumes he is dealing with a principal.
Watteau v. Fenwick & Co.
[1893] 1 QB 346
the doctrine of usual authority was held applicable
to such a case also. H owned a hotel. He sold it to the defendants, who
retained him as manager. The licence
continued to be held in his name, which remained over the door. The plaintiffs
supplied cigars to H, to whom alone they gave credit, believing him to be the
owner. They had never heard of the defendants, who had forbidden H to buy
cigars on credit. Upon learning that the defendants were the owners of the
hotel the plaintiffs sued them for the amount outstanding. The county court
judge gave judgment in favour of the plaintiffs and his decision was upheld by
the Divisional Court.
Once it is established that the defendant was the real principal, the
ordinary doctrine as to principal and agent applies - that the principal is
liable for all the acts of the agent which are within the authority usually
confided to an agent of that character, notwithstanding limitations, as between
the principal and the agent, put upon that authority.
6.1 Conditions needed to be
able to invoke apparent authority
6.1.1 A representation by the principal
An agent who is not authorized to enter into a contract cannot represent
his own authority to conclude the contract so as to commit his principal unless
he is authorized to make such a representation by the principal himself or by a
person having actual or apparent authority from the principal to authorize the
making of that representation. P's holding out of A as so authorized may be
direct or through another agent, and may also be effected by investing A with a
position or function in which he would have usual authority to conduct the
transaction which he represents he has authority to conduct. But without some
such holding out, A's representation of his own authority to contract does not
commit P, though it will expose A to an action by T for damages for breach of
warranty of authority.44 Similarly, if A has no apparent authority to conclude
a contract on behalf of P, he will not normally have apparent authority to
convey to T the approval of the transaction by P or by someone authorized to
approve it on P's behalf.
Apparent authority almost invariably arises in cases where the actual
authority given to the agent is general in character.
6.1.2 Reliance
T cannot invoke the doctrine of apparent authority unless he acted in
reliance on P's express or implied representation that A had authority.
Bedford Insurance Co. v. Institute de Resseguros do
Brasil [1984] 3 All ER 766
6.1.3 Contract within the capacity of the
principal
A cannot effectively commit P to a contract which P himself has no power
to make, for clearly what a principal cannot do himself he cannot do through an
agent. It follows that an act which would not bind P if done by A will not be
binding on him if done by a sub-agent.
7.0 RATIFICATION
OF ACTS DONE WITHOUT AUTHORITY
Where an agent concludes a contract without authority and expresses
himself as so doing on behalf of a principal who is then in existence and is
named or ascertainable from the description given in the contract, this may be
ratified by the principal, in which case it takes effect from the time it was
made.
8.0 RELATIONS BETWEEN PRINCIPAL AND AGENT
8.1 8.1 Capacity
in which agent acts
Where a transaction is effected through an intermediary, it is not
always easy to determine for which party he is acting as agent. There are
certain types of relationship where this is settled as a presumption of law or
as a matter of business usage in the absence of agreement to the contrary. For
example, an insurance broker is prima facie the agent of the insured, not of
the insurer, even though it is the latter from whom he receives his commission.
Newsholrne
Bros. v. Road Transport and General Insurance Co. Ltd [1929] 2 KB 356
8.2 Duties of the agent to the principal
In entering into an agency agreement A normally undertakes two distinct
sets of obligations to P. The first is the performance of the duties imposed on
him by the express or implied terms of the agency agreement. A must perform
with reasonable care and skill the duties allotted to him by the agreement,
must observe any lawful and reasonable instructions given by P so far as they
are consistent with the terms of the agreement and must act strictly within the
limits of his actual authority. P has the usual contractual remedies for breach
of any of these duties. But A's contractual obligations form only part of the
total. The law usually (though not invariably) treats A as a fiduciary and thus
requires him to fulfil a further range of duties which equity imposes on
fiduciaries. The extent to which these apply and the strength of their
application vary according to the nature and circumstances of the agency
agreement. They will generally include a duty to act towards P loyally and in
good faith," to keep money and other assets received from or for P
separate from his own, to keep and be prepared to render accounts of his
dealings on behalf of P, to subordinate his own interests to those of P, to
avoid conflicts of interest between P and other principals and to refrain from
using his position as agent to acquire for himself property, contracts,
business opportunities or other benefits which he ought (if acquiring them at
all) to do so for P. But not all these fiduciary duties apply with full force,
or, indeed, at all, to all contracts.
For example, it is well understood that an estate agent engaged to find
sellers and buyers of properties will be acting for competing principals, for
otherwise he could not carry on his business. Accordingly, the estate agent
does not commit a breach of fiduciary duty by failing to disclose to the
prospective vendor of one property that he is at the same time acting for the
prospective vendor of an adjacent property selling to the same purchaser, even
though the prospective purchase of both properties by a single buyer could have
affected the price, nor is the agent disabled from claiming commissions from
both vendors.
In performing his activities a commercial agent must look after his
principal's interests and act dutifully and in good faith. In particular, a commercial agent must:
(a)
(a)
make proper efforts to
negotiate and, where appropriate, conclude the transactions he is instructed to take care of;
(b)
(b)
communicate to his principal all
the necessary information available to
him;
(c)
(c)
comply with reasonable
instructions given by his principal.
The remedies available to P for breach of A's fiduciary duties vary
according to circumstances. They include personal remedies, such as an account
and payment of monies received for P, compensation by way of equitable debt for
loss caused to P, and confiscation of a bribe or secret commission received by
A, and remedies for the enforcement of proprietary rights, such as a
constructive trust of money or other assets received by A for himself which he
should have received (if at all) for P and the proceeds of P's property which A
has misappropriated.
8.3 Duties of the principal to the agent
Hitherto the duties owed by P to A have been left to be determined by
the express or implied terms of the agreement. English law has been reluctant
to imply terms other than in relation to A's remuneration and security for
payment of it, and the case law has for the most part been concerned with such
questions as whether A has done what is necessary to entitle him to his
commission and whether P owes A a duty to avoid steps (e.g. withdrawal from a
proposed transaction with T or cessation of business) which would prevent A
from earning his commission.
In his relations with his commercial agent a principal must act
dutifully and in good faith. A
principal must in particular:
(a) provide his commercial agent with the necessary documents relating
to the goods concerned;
(b) obtain for his commercial agent the information necessary for the
performance of the agency contract, and in particular notify the commercial agent
within a reasonable period once he anticipates that the volume of commercial
transactions will be significantly lower than that which the commercial agent
could normally have expected.
(c) not to undermine agent and make sale agreement after authorizing
agent to make sale depending on terms and conditions and to be liable to pay
commissions if necessary.
A principal must, in addition, inform the commercial agent within a
reasonable period of his acceptance, refusal, and any non-execution of a
commercial transaction which the commercial agent has procured for the
principal.
Whether an agent is entitled to be remunerated for his services depends
on the express or implied terms of the agency agreement. Agents used in trade
and commerce will almost invariably be remunerated, usually by commission, and
will be entitled to the agreed remuneration or, if the amount of this is not
specified, the remuneration that commercial agents appointed for the goods
forming the subject of his agency contract are customarily allowed in the place
where he carries on his activities, or if there is no such customary practice,
a reasonable sum taking into account all aspects of the transaction. The agent
also has a right to be reimbursed his agreed or reasonable expenses, and to be
indemnified against all liabilities, incurred in the performance of his duties.
But he is not entitled to reimbursement or indemnity in respect of unauthorized
transactions except where the principal ratifies them or accepts a benefit from
them, or in respect of transactions which he knows or ought to know are
unlawful.
9.0 POSITION OF THIRD PARTY: AGENCY DISCLOSED
Where A contracts expressly as agent for P as a named or identifiable
principal, T's contract is with P, not with A, and only P can sue and be sued
on the contract. This is so even where in making the contract A exceeds his
authority, though in such a case he becomes liable to T for damages for breach
of the implied warranty of authority. But A can expressly undertake liability,
either in substitution for that of P or in addition to P's liability. Where A
contracts as such but without disclosing P's identity, it is a question of
construction of the contract whether T entered into the contract on the basis
that he was willing to treat as the other party any person by whom A was
authorized to make the contract or whether he looks to the credit of A, not of
P. In the former case, T's contract is with P, in the latter, with A.
Where an agent acts on behalf of a principal within the scope of his
authority and the third party knew or ought to have known that the agent was
acting as an agent, the acts of the agent shall directly bind the principal and
the third party to each other, unless it follows from the circumstances of the
case, for example by a reference to a contract of commission, that the agent
undertakes to bind himself only.
However, in the case of signed contracts in writing there is an
established rule that where A signs in his own name he is personally liable
unless it is clear from the document that he is signing in his capacity as such
as documents, cheques, securities and the like; and set-off is involved only
where money is owed by P to A on a separate account, so that A can set off his
right of recoupment on one account against his liability to P on the other
agent.
The Swan [1968] 1 Lloyd's Rep 5.
The mere addition of words of description after the signature, such as
'agent', 'director', will not normally suffice to displace A's liability; it is
necessary for him to indicate that he is acting in a representative capacity,
e.g. 'for and on behalf of P."
Where A contracts as agent but without identifying P, who actually
exists, A will not normally be liable, but liability will be imposed where A is
in fact the principal, and has sometimes been imposed where P was fictitious or
non-existent or where A refused to disclose P's identity, thus preventing T
from enforcing the contract against P, Owen v. Gooch (1797) 2 Esp 567
or his evidence as to his principal is disbelieved. Hersom v. Bemett [1955] 1 QB
98
10.0 POSITION OF THIRD PARTY:
AGENCY UNDISCLOSED
Where A makes a contract as apparent principal, so that T is not aware
that he is an agent, the parties to the contract are A and T. But if T
discovers the facts, he may elect to sue P instead of A, Browning v. Provincial
Insurance Co. of Canada (1873) LR 5 PC 263 while P for his part may
intervene to enforce the contract made on his behalf. This doctrine of the
undisclosed principal is generally recognized as anomalous but is firmly
entrenched in English agency law. In this respect it differs sharply from the
civil law, which treats P's authority to A in such cases as a purely internal
mandate which neither confers rights nor imposes liabilities on T.
However, the doctrine of the undisclosed principal does not apply where
(a) the terms of the contract expressly or impliedly exclude P's right to sue
and liability to be sued, (b) A does not intend to contract on P's behalf, (c)
T makes it clear that he does not wish to contract with anyone other than A Said
v. Butt [1920] 3 KB 497 or (d) P stipulates that A is not to commit
P to a contract with third parties but is to undertake all transactions on his
own behalf.
11.0 TERMINATION OF THE
AGENT'S AUTHORITY
11.1 Principal's power of
termination
A's authority can be terminated by agreement or by P's unilateral act in
giving notice of revocation of the authority, and may also come to an end by
operation of law in various circumstances, such as P's bankruptcy. P can
terminate A's authority in part or completely, as by determining the agency
contract as a whole. But in certain cases, in particular where the authority is
given to secure the agent's own interest in some way, it cannot be revoked
before that interest has been satisfied and until then continues even after P's
bankruptcy. Typical cases of such 'authority coupled with an interest' are
where A has been empowered to resort to funds or securities held for P to
secure recoupment of expenses or cover for liabilities incurred on P's behalf.
But it has been rightly observed that the creation of such a power 'should be
regarded as a property disposition rather than as the conferring of authority',
for A exercises the power in his own interest.
However, P is not precluded from revoking A's authority merely by reason
of the fact that this would constitute a breach of the agency agreement. A's
remedy is to sue for damages for the breach; he is not entitled to continue
acting as if still authorized. Frith v. Frith [1906] AC 254
A matter of some importance is the agent's position on termination of
the agency agreement. An agent may spend considerable time and effort
developing a market for his principal only to find that the principal
terminates the agency and takes over the network of contacts without
compensating the agent. Until recently, the agent's entitlement to compensation
was purely a matter of contract. But under the EEC Agency Directive the
commercial agent is given important new forms of protection on termination of
the agency. In particular, the agent is entitled to an indemnity and
compensation to reflect the continuing benefit to the principal of business
introduced or increased by the agent and the loss of the commission which the
agent would otherwise have received.
11.2 Effect of termination on third parties
Termination of the agency agreement, though bringing to an end A's right
to commit P to new transactions, does not normally affect third parties who
dealt with P before the termination, or who act on the basis of usual
authority, and are unaware that A's authority has come to an end.
12.0 DISPOSITIONS BY AND TO A
12.1 Dispositions by A
A disposition of P's property by A to T will bind P where effected
pursuant to A's actual or apparent authority, in accordance with ordinary
agency principles. But A's power of disposal is not confined to true agency
situations in which P is brought into contractual relations with T; it applies
also where A disposes of P's goods as a commission agent or an agent of
necessity. Special statutory provisions apply to dispositions by mercantile
agents; these are discussed in a later chapter
12.2 Dispositions to A
Where A purchases goods from T at the request of P, it is not always
easy to characterize the transaction. Depending on the agreement between the
parties, A may purchase as agent for P as a disclosed principal (whether named
or unidentified) or as an undisclosed principal or as a commission agent who
buys on his own account and immediately resells to P. A may also participate by
confirming an order placed by P with T. According to the circumstances title
may pass direct from T to P without going through A, or may pass through A to P
without any interval between A's acquisition and that of B, or may be held by A
on trust for P or as beneficial owner until A has appropriated the goods to his
contract with P. The sometimes complex issues arising have been discussed by
the author elsewhere.
TUTORIAL QUESTIONS
1. Loco Smith Limited was the principal
shareholders in the company called Swan Software Group Ltd. and wished to sell
their shares in the company. In May 1999, they engaged the Regent Company
Limited to help them in that endeavour by providing “corporate finance and
strategic advice”. They concluded a service agreement, which set out the terms
under which the claimants agreed to act. Later that year the Loco Smith Limited
sold all its shares for $8 million or so to a company called Infor. It was
common ground that the Regent had neither introduced nor had any part in the
negotiations with any sale to Infor. Regent nevertheless sued for a success fee
of some $220,000 to which they said they were entitled under the service
agreement. The clauses of the agreement which have bee debated in front of us
are clauses as follows:
“1. The Directors of Loco Smith Limited agree to retain Regent to
provide corporate finance and strategic advice in support of its intention to
dispose of some or all of the shares or assets of Swan Software.
2.Regent will maintain and update a list of companies, investor
organizations or management groups (“prospective purchasers”) of Swan Software
and upon request provide an up-to-date list to you. The list of Prospective
Purchasers will include the names of senior officers of the Prospective
Purchasers who have been approached to effect introductions and fort the
purposes of this Service Agreement those senior officers are also Prospective
Purchasers. All companies and individuals on this list of Prospective
Purchasers are deemed to have been introduced to Swan Software by Regent fro
the purposes of this agreement unless and agreed otherwise in writing.
3. On the completion of each and every sale of some or all of the shares
or assets of the Swan Software (“Disposal”), Swan Software agrees to pay Regent
a corporate finances fee (“Success Fee”) of:
5% of the first £1,000,000
4% of the next £1,000,000
3% of the next £1,000,000
2% thereafter
of the Aggregate Consideration of the Disposal subject to a minimum fee
of £100,000 per Disposal payable at completion of the Disposal.
Loco Smith Limited is of the opinion that there is
no agency arrangement that merits payment of any commission to Regent. Please
advise Loco Smith Limited.
2. The respondent is a property
agent and the appellant the owner by transport of certain lands, which were
stated to comprise 500 acres, situated at Plantation Friends on the east bank
of the Berbice river. On 5 May 1982 the
appellant signed a written authorisation to the respondent empowering him to
sell the lands and, in pursuance thereof, to enter into an agreement of
purchase and sale. The sale price was
stated to be $200,000 and the conditions under which the agreement was to be
effected were also set out in the document which included the payment of a
commission on the sale. On 30 August
1983 the respondent entered into a contract of purchase and sale with A (in his
capacity as agent of B) for the required consideration of $200,000 and received
a cheque representing 10 per cent of the purchase price. The contract of purchase and sale was
prepared at the office of Mr Bacchus, attorney at law, whom the appellant had
told the respondent was his legal adviser, and Mr Bacchus signed as a
witness. On the next day the respondent
went to the appellant at his business premises in Strand, New Amsterdam. There he gave him a copy of the agreement
and the cheque. After reading the agreement,
the appellant threw both documents on the floor saying that he had no intention
of selling the property to A as he had robbed him. The respondent then spoke to Mr Bacchus, who sent a letter to the
appellant in which he enclosed the agreement and the cheque. The appellant responded by letter written by
Mr Hardyal, attorney at law, which rejected the respondent’s authority to sell
the property. This resulted in the respondent
issuing proceedings for breach of contract claiming the commission of 4 per
cent of the purchase price, or $8000.
The breach complained of was the refusal of the appellant without any
reasonable cause to take steps to bring the binding contract between himself,
through the respondent as his agent, and the purchaser to fruition by embarking
upon the necessary legal procedures. Discuss
the merits of the claim by the Agent.
3. Parbattee
Singh
instructed Vanessa Lall to sell certain property on the terms, among others,
that “should you introduce someone ready and willing to buy at the above price
or at a price acceptable to me or should the property be sold at any time
during the period of two months mentioned above or to a purchaser introduced by
you I agree to pay you a commission of 5 per centum of the sale price”. These terms were contained in a letter dated
26 June 2002, and by which Singh “entrusted the sale of (Singh’s) property ...
to (Lall) for a period of two months”.
Within the two-month period stipulated Lall obtained an offer from
Pretty Mohan to purchase the property at a figure which was unacceptable to
Singh. About six months later, Mohan
revived the interest of Singh in the property and arranged a meeting between
herself and Singh which resulted in an agreement by Mohan to purchase the
property at the same price originally offered.
Lall would like to obtain a commission as the agent for the sale
of the property and she has come to you for advice.