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The Real World
The Boss Worker You & I
Commercial Reality
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Law of Agency
IntroductionThe Importance of Agency Law
Agency relationships are present in numeroustransactions
It is arguably hard to go through a day in oneslife without encountering an agency relationship
For example, when you buy food at a universitycanteen the cashier is usually an employee ofsome food service provider
Although an employee, the cashier will also bean agent in respect of some of his or heractivities
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Law of Agency
Introduction (1) Lawyers will often act as agents for their
clients in various contexts
The bank manager acts as agent for the bankin entering into a bank loan on behalf of thebank
As for individuals it may be more convenientto transact through representatives
Company may enter into contracts since ithas legal personality, but it needs to betransacted by a physical person
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Law of Agency
Introduction (2) Partners in a partnership are considered agents
for each other
The board of directors of a corporation and theofficers of the corporation are agents for the
corporation It is very helpful to have a background in agency
law when studying various forms of associationfor carrying on business
Agency law is often an important part of the lawof various forms of business association.
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What is Law of Agency?
The large body of common law, which is a
mixture of contract law and tort law, which
governs agency
Therefore, Agency law primarily defines therelationship between the principal and the agent
Agency law also defines the effect that
the agency relationship has on the relationship
between the principal and third parties and
between the agent and third parties.
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Law of Agency
Definition of Agency
Agency is defined as the relationshipwhich arises where one person known asthe agent acts for another known as the
principal The agent can be viewed upon as an
extension of the principal
The acts of the agent may cause theprincipal to be brought into contractualrelationship with a 3rd party
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The Nature of Agency
Agency relationships are formed by the
mutual consent of a principal and an agent
Agency is the fiduciary relationship, which
results from the consent by one person to
another that the other shall act on his
behalf and subject to his control
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The Nature of Agency
Parties to the Agency (2)
Diagram
Agency
Contract
Principal
Agent 3rd PartyContract with 3rd
party on behalf of principal
Principalsobligation to
perform the
contract
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Law of Agency
Parties to Agency Agreement
Principal the person who delegates
authority
Agent the person who acceptsauthority and acts on behalf of the
Principal. An agent can affect the legal
relations of the principal 3rd Party the person whom the agent
deals with on behalf of the Principal
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Who can be Parties
to Agency Relationship
Any person who has the capacity to
contract can appoint an agent to act on his
or her behalf
Persons who do not have the capacity to
contract, for example, minor and one with
unsound mind, cannot appoint an agent
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Lawful Purpose of Agency
An agency can be created only to
accomplish a lawful purpose
Agency contracts that are created for
illegal purposes or are against public
policy are void and unenforceable
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Law of Agency
Relationship resembling agency
There are many relationships at common
law resembling agency relationships but
they are not capable of affecting the legal
relationship of another: For example, servants/employers,
trustees/beneficiaries or bailees
Normally acts of servants would not bindthe master vis--vis a 3rd party
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Law of Agency
How Agency is Created
Agency can be created in the following
ways:
1. Express authority
2. Implied authority
3. Apparent authority
4. Agency by ratification5. Agency by necessity
6. Agency by estoppel
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Law of Agency
Express Authority
Express actual authority is so called because the
principal has stated either orally or in writing
what the agents authority is.
Express authority includes the authority that canbe inferred from the written or oral words
expressing the scope of the agents authority.
The contract can be in writing or verbal
Both the principal and agent must have given
consent
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Law of Agency
Express Authority (1)
To determine consent one may:
Look to what the principal and agentsaid and did at the time of the allegedcreation of the agency
Earlier and later words and conductmay afford evidence of the creation ofthe agency
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Law of Agency
Express Authority (2)
Where the principal intended to give theagent authority to affect his or her legalrelations, or where the principal and agentwould have reasonably expected theagent to have authority, the agent is saidto have actual authority
Actual authority can be express orimplied
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Law of Agency
Express Actual Authority
Express actual authority is so calledbecause the principal has stated eitherorally or in writing what the agentsauthority is
Express authority includes the authoritythat can be inferred from the written or oralwords expressing the scope of the agents
authority
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Law of Agency
Implied Actual Authority The term implied authority is usually used to
refer to the authority that the principal and agentwould have expected the agent to have in thecircumstances
In other words, the question is what the principalor agent would have understood the authority ofthe agent to be in the circumstances
To determine the implied authority of an agent,
courts look to the usualorcustomaryauthority ofsuch agents
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Law of Agency
Usual Authority The usualauthority of an agent is determined by
looking at what the agent has been allowed todo in the past
The principal may not have given oral or written
express authority to the agent to do a particularthing and it may not be possible to infer theauthority from any oral or written expression ofauthority
if the agent has done certain things in the pastthat are outside the express authority of theagent but the principal has allowed the agent
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Law of Agency
Usual Authority (1)
to do those things, then the agent may besaid to have usual authority to those things
In other words, the agent is said to have
actual authority where the agent doessomething she or he has usually beenallowed to do by the principal
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Law of Agency
Example Usual Authority
For example. In Freeman & Lockyer v.
Buckhurst Park Properties (Mangal) Ltd.,
[1964] 2 Q.B. 480
A person by the name of Kapoor was acting asif he was the managing director
The board of directors had never actually
appointed him as managing director In other words, Kapoor had no written or oral
grant of authority
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Law of Agency
Example Usual Authority (1)
However, the board of directors wasaware that Kapoor was acting asmanaging director and allowed him tocontinue to do so
Kapoor might have been said to haveactual authority to act on behalf of thecompany
That actual authority was not expresssince Kapoor was never appointed asmanaging director
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Law of Agency
Example Usual Authority (2)
However, actual authority could be
implied from the circumstances.
The scope of that authority could have
been based on what the directors of the
board had usually allowed Kapoor to do
in the past
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Law of Agency
Customary Authority
The customaryauthority of an agent isdetermined by looking at the kind ofauthority agents of that type normally have
For example, stockbrokers normally do certain types of
things on behalf of their principals
Bank managers do certain types of thingson behalf of the bank
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Law of Agency
Customary Authority (1)
In the Freeman & Lockyercase notedabove Kapoor might have been said tohave customary authority to act on behalf
of Buckhurst Park Properties (Mangal) Ltd.in that the directors of that company hadallowed Kapoor to act as if he were themanaging director (similar to a company
president) and Kapoor might thus be saidto have the authority that managingdirectors customarily have
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Law of Agency
Implied Authority
Even when precise words are used in the
express authority, an agent may find himself in
circumstances where the acts he wants to do
are not covered by those words. It is sometimes possible to imply authority from
the precise words. More specifically, an agent
would have implied authority to carry out an act
if the agent has no choice but to do it in order tofulfill his express authority
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Law of Agency
Example Implied Authority (cont 1)
For Example,
A housing agent may be given authority toonly sell the house
The agent may wish to show the house topotential buyers
If the agent had no authority to do so then
he and the potential buyer would betrespassers and, therefore, liable to theowner in damages.
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Law of Agency
Implied Authority (cont 2)
However, because showing a property is
necessary and incidental to effecting a
sale, the agent can imply the authority
from his express authority
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Law of Agency
Apparent Authority
Even where no authority has been
expressly or impliedly conferred, an agent
may still be able to bind the principal
This arises where a principal has acted in
such a way that he leads third parties to
believe his agent has authority to perform
certain acts on his behalf
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Law of Agency
Apparent Authority (cont 1)
In such cases, it is said that the agent
has apparent authority
Note that the appearance of authority must
have arisen because of what the principal
did. An agent cannot make
representations as to his own authority
and bind the principal by what the agenthimself says
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Law of Agency
Apparent Authority (cont 2)
Rationale for Apparent Authority
Apparent Authority creates most Problems
Apparent authority is the authority that theagents appear to the outside world to have
Apparent authority is the legal relationship
between the principal and the contracting
party created by a representation made by
or on behalf of the principal
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Law of Agency
Apparent Authority (cont 3)
Consider the following scenarios for clarity:
For example, a company secretary wasinstructed by the Managing Director not to
book any hotel rooms for AGM without hisexpress approval
In defiance, she booked the hotel roomanyway
To the hotel, she had done nothing wrongbecause she is doing what a secretaryusually do
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Law of Agency
Apparent Authority (cont 4)
The hotel has no knowledge of the
limitation of her authority
In this scenario, the secretary has the
apparent authority as a secretary
notwithstanding that her actual authority
had been curtailed
The Managing Director would be bound bythe secretarys act vis--vis the hotel
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Law of Agency
Apparent Authority (cont 5)Further example, The Managing Director told the clerk she can
take booking for the apartments that have notbeen built
The clerk signed and concluded the contract One would not normally expect a clerk to have
the authority to negotiate and signed a contract,that is, a clerk does not have the apparent
authority The Managing Director would be bound because
the clerk has been given the actual authority
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Law of Agency
Apparent Authority (cont 6)
Rationale for Apparent Authority
Transactional certainty in commercial world
The law of agency cannot be limited to cases
where the agent has actual authority, whether
express or implied
To allow so, commercial transaction would be
inefficient and transaction costs may go upbecause 3rd parties will do all due diligence
before they sign with any agent
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Law of Agency
Apparent Authority (cont 7)
Agents Discretion
To ensure commercial efficiency, it isimportant that agents be given some
degree of discretion when carrying outtheir duties, for example to negotiate andfinalize agreement
At the same, 3
rd
parties must be given thelegal recourse in the event that agentsacted outside their scope of actual duties
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Law of Agency
Apparent Authority (cont 8)
the law of agency has therefore developed the
doctrine of apparent authority whereby an
agent who appears to have authority is
capable of binding his principal where the thirdparty has acted on the faith of such
appearance of authority
If the 3rd party relies on the appearance of
authority that has come about because ofsomething that the