Agency relationship


Don’t waste time Get a verified expert to help you with Essay

Agency is a fiduciary relationship created by categorical or implied contract or by law, by which one get together (the agent) may act on behalf of one other get together (the principal) and bind that different celebration by phrases and/or actions. The etymology of the word agent or company says a lot. The words are derived from the Latin verb in the past, agere (the respective noun agens, agentis). The word denotes one who acts, a doer, pressure or power that accomplishes issues.1 Agency is the exception to the doctrine of privity underneath the regulation of contract.


Lord Alverstone CJ in THE QUEEN V KANE2 defined an agent merely as ‘any one that happens to behave on behalf of another’. A principal is one who authorizes another to behave on his or her behalf as an agent.

The common rule is that where an agent makes a contract on behalf of his principal, the contract is between the principal and the third celebration and prima facie at common regulation, the one person who can sue and be sued on the contract is the principal.

The agent acquires no rights underneath the contract, nor does he incur any obligation. Having performed his task by bringing a few contract between his principal and a third party, the agent drops out of the image topic to any outstanding matters between him and principal.3 The onus is on the individual alleging that he entered into a contract with another individual by way of an agent to prove that in fact the agent was appearing as such.

Agents of the state can by no means be personally answerable for the state’s failure to carry out a contractual obligation as acknowledged in STICKROSE (PTY) LIMITED V THE PERMANENT SECRETARY MINISTRY OF FINANCE

4. In law, brokers are acknowledged as having the ability to affect the legal rights, liabilities and relationships of the principal. In CAVMONT MERCHANT BANK v AMAKA AGRICULTURAL HOLDINGS5, the Supreme Court held that the place an agent in making the contract discloses each the interest and the names of the principal on whose behalf he purports to make a contract, the agent as a common rule just isn’t liable to the other contracting celebration. Apart from having the facility to affect the authorized rights, liabilities and relationships of the principal, the agent can also affect the authorized place of his principal in different methods. For occasion, he might get rid of the principal’s property in order to transfer possession to a third get together or he could acquire property on his principal’s behalf. Sometimes the actions of the agent could make the principal criminally liable as illustrated within the case of GARDENER v ACKEROYD

6. The rights and liabilities of principal and agent against third events might differ according to whether or not the company is disclosed or undisclosed. The distinction between disclosed and disclosed company is essential as it impacts the principal’s capacity to ratify the agent’s actions. Furthermore, the agent’s liability to 3rd parties could depend upon whether the company was disclosed or not. Agency is disclosed where the agent reveals that he is performing as an agent; if the agency is disclosed it’s of no legal significance that the principal is not named. If an agent contracts with a 3rd celebration without disclosing that he’s performing as an agent the agency is undisclosed.

7 An undisclosed principal can intervene on the contracts of an agent within his actual authority.

Where an agent makes a contract disclosing the agency, the normal rule is that a direct contractual relationship is created between the principal and the third get together and either get together can sue the other on the contract. It is essential to note that solely a disclosed principal can ratify an unauthorised contract. In KEIGHLEY MAXTED v DURANT8 a principal authorized an agent to buy wheat at a given worth within the joint names of the principal and the agent. Having didn’t purchase wheat at that larger worth, the agent bought wheat in his personal name at the next value. The principal being satisfied with this act purportedly ratified the wheat purchase settlement at the next worth however did not take delivery of the wheat.

The seller then sued the principal arguing that the sale contract had been ratified. It was held that the motion couldn’t succeed as a outcome of the agent’s act was unauthorized and because the principal’s identification had not been disclosed to the sellor, the principal could not ratify and consequently was not liable on the contract. Where the principal is disclosed, he and never the agent is liable on the contract and should sue and be sued. In GADD v HOUGHTON & CO.9 Houghton & Co. sold to the buyers Gadd, a quantity of oranges beneath a ‘sold note’ which stated, inter alia, that ‘we have today bought to you on account of James Morand & Co ….’ and signed ‘Houghton & Co.’ The vendor having didn’t ship the oranges, the buyer sued Houghton & Co for damages for non-delivery. The motion failed, since by the words of the sold observe Houghton & Co had clearly indicated that they had been not to be personally liable.

They had been merely brokers. Lord Mellish said that “where you find an individual in the physique of the instrument treating himself as the seller or character, you presumably can say that he supposed to bind himself.” In SUI YIN KWAN & ANOTHER v EASTERN INSURANCE CO. LTD10 it was held that the doctrine of undisclosed principal utilized. Where an agent acts within his actual authority the undisclosed principal might intervene and purchase the rights/liabilities of the agent. In this case, the agents acted inside their actual authority and subsequently, the relations might get well from the insurance coverage company.

Lord Lloyd summarized the law as follows: (1) an undisclosed principal might sue and be sued on a contract made by an agent on his behalf, performing inside the scope of his actual authority. (2) In entering into the contract, the agent should intend to act on the principal’s behalf. (3) The agent of an undisclosed principal may sue and be sued on the contract. (4) Any defence which the third party may have in opposition to the agent is out there in opposition to his principal. (5) The terms of the contract might, expressly or by implication, exclude the principal’s right to sue, and his legal responsibility to be sued. The contract itself, or the circumstances surrounding the contract, could show that the agent is the true and solely principal.

Sometimes the agent contracts with third events after disclosing the fact, that he is an agent however without disclosing the name of his principal. In such instances, the principal is bound by the contracts made on his behalf. And thus, the principal is liable to third parties for his agent’s acts carried out on behalf of the principal. However, such acts have to be within the scope of the agent’s authority, and the unnamed principal must be in existence at the time of contract. As a matter of reality, when the agent contracts after disclosing his consultant character, the contract would be the contract of the principal. For all such acts, the agent just isn’t personally liable. However, the agent is personally liable if he declines to disclose the identification of the principal when asked by the third parties.

11 When there’s undisclosed agency, the contract is initially between agent and the third celebration and each might implement the contract towards the opposite. However, if the third party later discovers the principal’s existence, he might enforce the contract towards both the agent or the principal. Provided that the agent acted within the scope of his precise authority, the principal can intervene and implement the contract against the third party.


3. CIRCUMSTANCES WHEN AN AGENT MAY BE HELD PERSONALLY LIABLE If an agent continues to behave after his authority has been terminated, he could incur private legal responsibility for breach of implied warranty of authority. Sometimes an agent might suffer a potential threat when his authority is terminated routinely with out his information. In the case of YONGE v TOYNBEE13 where solicitors had been appearing in litigation for a shopper who, unknown to them, grew to become mentally incapacitated in order that the company was thought of to be terminated. However, they continued to litigate for the client and were held liable for his or her breach of warrant of authority and have been ordered to pay the prices of the other litigant.

There are three distinctive cases the place the undisclosed principal can not sue or be sued, by the third celebration. The first is where the contract between the agent and the third celebration expressly provides that the agent is the sole principal U.K MUTUAL STEAMSHIP ASSURANCE ASSOCIATION v NEVILL14. The second is the place the terms of the contract are inconsistent with company. In HUMBLE v HUNTER15, an agent signed a charter-party in his own name and described himself as “owner” of the ship. It was held that his undisclosed principal couldn’t sue.

The third case the place an undisclosed principal cannot sue is where the identification of the principal is material to the third celebration. One such case is the place the contract made between the agent and the third party is too personal to permit an undisclosed principal to intervene, for instance, contracts for private service. In the case of SAID v BUTT16, a theatre critic knew the administration of a specific theatre would not promote him a ticket because of articles he had written. He obtained a ticket through an agent. It was held that the theatre might prevent the principal from coming into the theatre. McCardie J mentioned that “the critic could not assert a proper as an undisclosed principal since, as he knew, the theatre was not keen to contract with him”.

Even the place the undisclosed principal’s existence is discovered, the agent stays liable on the contract and the third celebration may select to implement the contract in opposition to either principal or the agent but not both. This is named the right of election. A third get together has an elective right to sue both the agent or the principal where the agent does not disclose the principal. In BOYTER V THOMSON17 the seller instructed agents to promote on his behalf a cabin cruiser under a brokerage and agency settlement. The purchaser bought the boat considering it was owned by the agents and he was not advised that the brokers had been acting as such nor the name of the owner nor that the owner was not selling in the midst of a enterprise although he was aware that the boat was being sold under a brokerage arrangement.

The boat proved to be unseaworthy and was unfit for the aim for which she was bought. The buyer sued the vendor for damages which were granted. The seller appealed to the House of Lords the place goods had been sold by an agent appearing in the middle of business for an undisclosed principal the buyer was entitled to sue not only the agent but additionally the principal. Once the third celebration elects to sue one celebration, his choice to sue the other is extinguished. However, not any action by the third get together suggesting motion against one party in desire for an additional will be construed because the train of the proper of election. In CURTIS v WILLIAMSON18, one Boulton appearing to behave on his own behalf bought some gunpowder from the plaintiff. Later, the plaintiff discovered that Boutlton was performing on behalf of an undisclosed principal, the defendant mine owners.

Boulton then filed a petition of liquidation and the plaintiff filed an affidavit in those proceedings in an attempt to get well the debt owed for the gunpowder. However, the plaintiff changed their thoughts and sued the defendant principal. It was held that after an undisclosed principal is discovered the third celebration could elect to sue that principal; and secondly, that the filing of the affidavit in opposition to the agent didn’t prevent the motion against the principal. The third party won’t be certain by an election unless he has unequivocally indicated his intention to carry one celebration liable and launch the opposite. The doctrine of the undisclosed principal exists for purposes of commercial comfort, you will need to keep protections for the third party. In the situation where the agent has did not move the payment to the third celebration, both the principal or the third get together will lose and it seems fairest to place the loss on the principal.19


As the connection between the agent and his principal is predicated on consent, actual authority is of paramount significance. An agent is only entitled to be paid if he acts inside his actual authority. If he acts outside his authority he could also be liable to his principal. The relationship between the principal and a third celebration depends on the agent’s power to bind his principal. However, what’s of concern to the third celebration is the agent’s obvious authority as this is what he depends on in the strange course of occasions. There are a quantity of kinds of authority. These are: a) Express Authority – the settlement between a principal and agent may be specific or implied. Express agreement may be made orally, in writing or by deed. In basic, if an agent is appointed to execute a deed his appointment is by deed referred to as an influence of lawyer. b) Implied Authority arises where, although a specific action isn’t sanctioned by specific settlement between the principal and the agent, the principal is nevertheless taken to have impliedly consented to the action or transaction in query.

In GARNAC GRAIN CO. v H.M.F. FAURE AND FAIRCLOUGH20 the House of Lords acknowledged that “the relationship of principal and agent can solely be established by the consent of the principal and agent. They shall be taken to have consented if they’ve agreed to what quantities at legislation as a relationship even when they do not acknowledge it themselves and even when they have professed to deny it. An agent who has express authority to carry out a selected task may have additional authority to do certain acts incidental to his authorized task For occasion, an agent authorized to promote the principal’s property has implied incidental authority to sign a contract of sale.” c) Apparent Authority – an individual may be certain by the acts of one other carried out on his behalf without his consent and even in breach of an categorical prohibition if his words or conduct create the impression that he has approved the opposite particular person to act on his behalf.

This is described at legislation as “apparent company or authority” or “ostensible company or authority”. The distinction between actual and obvious authority was explained by Diplock L.J. in FREEMAN & LOCKYER V. BUCKHURST PARK PROPERTIES21. “Apparent” or “ostensible” authority, is a legal relationship between the principal and the contractor created by a illustration, made by the principal to the contractor, supposed to be and in fact acted on by the contractor, that the agent has authority to enter on behalf of the principal right into a contract of a sort within the scope of the “apparent” authority, so as to render the principal liable to perform any obligations imposed on him by such contract.

To the relationship so created the agent is a stranger. He need not be (although he typically is) aware of the existence of the illustration. The illustration, when acted on by the contractor by coming into into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he’s not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract.

d) Agents of Necessity – A one who acts in an emergency, for example, to preserve the property or curiosity of one other could additionally be treated as an agent of necessity. His actions might be deemed to have been authorized even if no precise authority is given. Like apparent authority, an company of necessity can arise even in the absence of consent from the principal. Agency of necessity solely arises in extreme circumstances where there is actual and definite industrial necessity for the agent’s actions. The following should be satisfied for an company of necessity to exist:

(i) There have to be an emergency – one thing unexpected.

(ii) It must be virtually unimaginable to get directions for the principal. (iii) The agent should act bona fide in the curiosity of the principal rather than to advance his own pursuits. He should not benefit from the principal. (iv) The agent should act reasonably in the circumstances.

e) Agency arising out of Co-habitation – It is argued that a spouse has authority to pledge the credit score of her husband for requirements (or vice versa). However, others argue that social situations now make it old fashioned to suggest that precise or obvious authority should not arise between husband and wife.

The law recognizes the following as brokers although they do not bear the title of agent22: (a) Company Directors and different company officers – being a man-made individual, an organization has to behave by way of human agents. Then authority to behave as firm brokers is vested within the board of directors. This authority may be delegated to one or more government administrators by the articles of the corporate to allow him to handle the day-to-day operations of the corporate. (b) Partnerships – as a partnership has no separate authorized id from its members, every associate in a agency is an agent of the firm as well as all other partners for the purpose of the business of the agency.

Thus, a companion who performs an act for the aim of finishing up the enterprise of the firm, binds the agency in addition to the opposite companions. (c) Employees – could also be servants working beneath a contract of service or an impartial contractor working beneath a contract for companies. An worker e.g. a shop assistant is the agent of the shop owner for the purposes of making a contract of sale for the proprietor. He has the authority to make statements about goods that are binding on the store owner, his employer. (d) Professionals – appearing on behalf of shoppers could be the agents of these shoppers. E.g. a lawyer conducting litigation is his client’s agent and may have authority to settle the case and that settlement will bind the client. Thus the lawyer, not the shopper, usually signs a consent judgment. Similarly, an accountant’s agreement or assertion to ZRA will bind his consumer in accordance with agency principles.

The relationship between principal and agent depends on consent. If withdrawn, the agency will routinely finish, in addition to the agent’s actual authority to bind the principal. An company relationship may be terminated within the following ways: (a) By mutual consent between the agent and the principal.

(b) By either party unilaterally withdrawing consent.
(c) An agent might have been appointed for a onerous and fast time frame or for a selected task or set of duties. Once the time elapses or the task(s) is/are completed the agency will terminate. (d) By operation of regulation e.g. if the efficiency of the company relationship becomes unlawful (e.g. one get together turns into the citizen of an alien enemy) or inconceivable (where it goes to be ended by the agency contract being frustrated). Death of either get together will also terminate the company and any contract made between them. If an agent becomes insane, the relationship is mechanically terminated. The chapter of both the agent or the principal may also finish the agency.23

The Effect of Termination vis a vis Third Parties

The agent could proceed to have apparent authority even if actual authority has been terminated. If the principal’s conduct is similar to to recommend to a third celebration that the agent continues to have authority. Until the principal brings the termination of the agent’s authority to the discover of a third celebration, the agent could continue to have apparent authority on the strength of the principal’s representation. DREW v NUNN24 the principal became insane however his wife, who was his agent, continued to behave in his name. When he recovered from his insanity he tried to deny legal responsibility for acts accomplished by his spouse during his insanity/incapacity. Held: The agent i.e. his spouse, had obvious authority and due to this fact he was bound. However, the place an agent’s precise authority is terminated by the principal’s dying or bankruptcy the agent will automatically stop to have obvious authority.