What is Law of Agency

The law of agency is when an agent is authorized to act on the behalf of the principal and to create a legal relationship with a third party. An agent is a person employed by principal in dealings and act on the behalf of principal with third persons. Principal is the person for who is represented by the agent. According to contract Act 1950, there are 5 ways that may arise an agency, which are by express appointment by the principal, by implied appointment by the principal, by ratification by the principal, by necessity and by the doctrine of estoppels/holding out.

By express appointment by the principals

According to section 140, an agent may be authorized and raised by mouth or word to sign a contract. When the term was specifically mentioned and agreed by both parties and when the contract is made, the express terms is arising. The contract can be either in oral or in writing form. There is an example of an express appointment by the principals, which is a Power of Attorney. A Power of attorney mean you can allow and authorized an agent to act on your behalf when you are unable to do your affairs. For example, your agent will help you to manage your affairs when you are mental illness or you are unable to do the affairs. The power of attorney’s document should be in the written form. If the attorney try to get the secret profit or personal profit by acted unreasonable of his job scope and power, the principal is not liable on this act.

By implied appointment by the principal

According to section 140, implied appointment by principal will arise when a principal was speak or write the dealing by using his own words, and there was a third party has the authority to act for him or her. There are 3 conditions in the implied appointment, which are:

Agency can be inferred from the circumstances of the case

Case: Chan Yin Tee v William Jacks & Co

Fact: The plaintiff agreed and supplier the goods to the defendants because the defendant said that he is the partner of another in a meeting. However, the defendant does not pay the payment for the goods delivered as he doesn’t know the commerce of business. The plaintiff wants to sue as defendants breach the contract for not being paid the goods.

Held: The court said the defendants was not entitled to repudiate the contract, they are liable to the contract.

Husband and wife’s relationship

The relationship of principal and agent may arise between the husband and wife, which is the husband, can be act as principal and wife and act as agent. The wife can act as agent to her husband as she has the right to buy necessaries goods on credit by under her husband’s name. The daily goods are use to suit their lifestyle. The examples of goods are daily goods and etc. So, the husband is liable for payment of the goods. Once both of them are not stay together anymore, the presumption can be stopped. The husband can rebut the presumption and not liable for the goods by proving that:

he was declare and stop his wife to warrant his credit specifically; or

he gave the warning to the tradesman by not to supply the goods to his wife expressly; or

the sufficiently and satisfactory allowance was given to his wife; or

the enough goods were provided to the wife; or

By consider the financial of the husband, the demands of necessaries were unreasonable to her wife living style.

Partnership business, Partnership Act 1971, section 7

According to this partnership Act, it considers that a partner can act as an agent of another while they are involved in the partnership business. The partner has the authority to the act carry by another partner in the business. The presumption can be accepted when the person with whom he is dealing with was knows the partner has no authority to act on the agreement when the contract is not complete yet.

Case: Edmund v. Bushell and Jones

Fact: The defendant was employed by plaintiff as a manager and defendant will operate at the London’s company. Firstly, plaintiff was prohibiting defendant from accepting bills of exchange. However, defendant still insists to accept the bill and breached the prohibition at the end. Plaintiff sues for the defendant’s act.

Held: The plaintiff was liable on this case as others knew that defendant was the agent of plaintiff.

By ratification

Under the Contracts Act 1950, section 149, (Right of person as to acts done for him without his authority, effect of ratification), whereby acts are done by one person on behalf of another but without his knowledge or authority, he may elect to ratify or to disown the acts. If he ratifies them, the same effects will follow as if they had been performed by his authority. This means that one of the two situations must exist before agency by ratification can arise. This can be created either an agent who was duly appointed has exceeded his authority or a person who has no authority to act for the principal has acted as if he has the authority. The principal can either reject the contract since he has not authorized it or accept the contract made. Once accepted, the contract is known as ratification.

Case: Sentance v Hawley

Fact: Plaintiff, a broker, on instructions of defendant bought three lots of sugar for him, numbered 67, 68, and 69. By the conditions of sale the goods were to remain at the wharf, at seller’s risk, till the warrants were delivered to the buyer. On 25 May defendant requested plaintiff to obtain a warrant for lot 67 and clear it at the Custom House, which he did. At the same time plaintiff paid and obtained warrants for the other lots, which was the ordinary course of proceeding among brokers, they getting discount allowed by the seller. It was proved that defendant knew of this practice, and that it had been done in this instance. On 22 June defendant instructed plaintiff to clear lot 68. According to the ordinary practice, if the warrants had not been obtained previously, they would have been obtained on the Saturday, and the duty would have been paid on the following Monday. The warrants, however, had been previously obtained. A fire broke out after business hours on Saturday, and lot 68 was destroyed.

Held: The conduct of defendant amounted to a ratification or adoption of the previous payment. The sugar was then standing at the buyer’s risk. Plaintiff could recover the money paid for it as money paid for defendant’s use.

By necessity (in an emergency)

An agent has authority, in an emergency; to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances. It is created when a person is entrusted with another’s property. This becomes necessary for the person to do something to preserve that property although he has no express authority to do so. There must be already some existing contractual relationship between the principal & the person who acts on his behalf. There are three conditions whereby it may be created if the conditions are fulfilled. The conditions are it must be impossible for the agent to get the principal’s instruction, the agent’s action is necessary and agent of necessity has acted in good faith.

Case: In Prager v Blatspiel. Stamp & Heacock Ltd. [1924]

Fact: During the First World War an agent of a fur merchant in Bucharest bought £1,900 worth of skins. The merchant paid for the skins but owing to the war the agent couldn’t dispatch the skins to him. The skins increased in value and the agent sold them.

Held: There was no agency of necessity the court held. The skins were not likely to drop in value and could be preserved by proper storage.

(v) By estoppel

Normally, a person is not restricting by the contract which is made on his behalf without his authority. But if a person allows a third party to believe A is his agent, however, when A is not his agent and the third party believe that A is his agent, the person will be estoppels from defending the existence of agent.

Case: Freeman & Lockyers v Burkhurst Park Pty Ltd

Fact: The agent actually has no authority and power to the act, but he still hired the plaintiff to work for the defendant. But the defendant does not stop the act or contract that authorized by the agent. After that, the defendant refuses to make the payment to the plaintiff when the plaintiff claims for the payment because the agent did not have the authority to ask the plaintiff to work for the defendant.

Held: The defendant was estopped by denying the agent’s authority to act on behalf of them. The defendant was not entitled to repudiate the contract and liable to the payment because others were knew and believed that the agent has the authority to act on behalf of them.

b. Agents and principals have their own duties to arise an agency. With the reference Contract Act 1950 Section 168, agents are not allowed and cannot to make any secret or personal profit for himself by conducting his duty. Actually secret profit is not restricted to money only but it may include the others value’s things, for example, an interest-free loan and etc. An agent who has made secret profit on his own account is liable to the principal. On the other words, the agent has used the property of principal to make personal benefit for himself, the agent was deals on his own account in the business act as agency, if the agent does not obtaining the consent or agree of his principal and acquantining him with all material circumstances, the principal may entitled to repudiate transaction or contract. The agent should not make a secret profit in his own account. If the agent gains the unjust benefit by use of principal’ property, the principle may:

Repudiate or not liable for the contract if it is bring disadvantages to him

Dismiss or fired the agent for breach of duty and performance

Get the amount of secret profit back from the agent.

For example, case Tan Kiong Hwa Vs Andrew S.H. Chong

The principle was only authorized the agent to sell the flat for $45,000, but the agent sold it for $54,000. As the agent was breached his duty, the court held that the principal was entitled to recover the $9,000.

Do not have the authority and need to pay the commission to the agent

For example, case Andrews Vs Ramsay and Co

The defendant was received 50 pounds as commission from the plaintiff. However, the plaintiff later known that defendant does not report the others commission from the purchaser. The amount is 20 pounds. Plaintiff sued the defendant to recover the two amounts which paid by him. The court held that he entitled to recover both sum of amount.

(e) The principal may dismiss the agent for breach of duty.

may sue the agent and third party for any damages and loss

But, if the principal knows about the secret profit and consent to the transaction or contract, the agent is entitled and able to keep the profit.

In the (Boardman v. Phipps [1966] 3 ALL ER 721, per Lord Denning on p. 856) case, the defendants, acts as a solicitor of a family trust. The trust assets include 27% holding in a company, defendant was cared about the accounts balances of a company and he was demanded and required to protect the shareholding. Defendant and his beneficiary went to a shareholders’ general meeting. They suggested to a trustee which is Mr. Fox that they were desirable to acquire a majority shareholding, but Mr. Fox refuse because it was not job scope of trustee. At the end, defendants were decided to purchase the shares but they did not informed consent of all the beneficiaries about this issue. The company made distribution to them by capitalizing the assets. The distribution of the trust benefited is £47,000, while defendants’ distributions are £75,000. Then, the plaintiff as another beneficiary of the company sues for their profits.

Held: Defendants was not entitled to repudiate the contract and is liable for his breach of the duty.

Conclusion: Agents were disallowed to make any secret profit in perform his duty. But if the secret profit was known by the principal, agent is entitled to keep the profit.