Five Ways a Contract of Agency Can be Created

The law of agency is an area of commercial law dealing with a contactor or quasi-contractor, or non contractor set of relationships when a person, called an agent, is authorized to act on the behalf of principal to create a legal relationship with a third party. An agent is a person employed to do any act for another or to represent another in dealings with third persons. Principal is the person for whom such act is done, or who is represented. With the reference of 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

In contract act 1950 section 140, an agent may be authorized by mouth or word to sign a memorandum. Express terms are the terms that have been specifically mentioned and agreed by both parties at the time the contract is made. They can be either in oral or in writing. The principal may by spoken or written words ‘appoint’ another person to act on his behalf. An example of an express appointment is a Power of Attorney. A power of attorney is construed strictly and if an attorney, in purported exercise of his authority, acted outside the reasonable scope of his powers by changing his principal, the principal will not be liable. He will be reliable only when he adopts it. For some purposes, the law requires a power of attorney to be in writing.

By implied appointment by the principal

In contract Act 1950 section 140, implied appointment arise when a person, by his words, hold out another person as having authority to act for him. The thing spoken or written or the ordinary course of dealing.

When it is to be inferred from the circumstances of the case, may be accounted circumstances of the case.

Chan Yin Tee v William Jacks & Co

The appellant which is Chan and Yong is a minor. Both of them were registered as partners in a business. With a representative of the respondent company at a meeting, Chan held himself out to be Yong’s partner. Business then commenced between the parties and goods were supplied to Yong but the price was not paid. The respondent company obtained judgment against Chan and Yong. They appealed to the Federal Court. The court held that irrespective of whether Chan was a partner or not, Chan had the authority to do things on his behalf and, Chan who act as appellant was liable for Yong’s acts.

Relationship between husband and wife

The relationship of principal and agent may exist between the husband and the wife. There is a rebuttable presumption in law that a wife living together with her husband and the wife has the authority to pledge her husband credit for necessaries suited to their style of living. The example are sundry goods, household and etc) .Once the cohabitation ceases, the presumption ceases and the tradesman must prove that the husband held his wife out to have his authority to contract. The tradesman must also show that the goods ordered were necessary and not extravagant. For example, a husband who habitually takes upon himself the liability to settle his wife’s past dealings and purchases from tradesmen will remain responsible and liable for all such contracts unless and until he makes it known to the tradesmen that her agency has been determined. In other words, the presumption can be rebutted by the husband proving that:

he expressly forbade his wife to pledge his credit; or

he expressly warned the tradesman not to supply his wife with goods or credit; or

his wife was given sufficient allowance without having to pledge his credit; or

his wife was sufficiently provided for with goods of the kind in question; or

The order, though for necessaries, was unreasonable, considering her husband’s financial position at the time.

By the Partnership Act 1971, section 7

This partnership Act provides that partners are each other’s agents when contracting in the partnership business. Any act carrying on by a partner in the usual way business carried on by the firm binds the firm and his fellow partners, even if the partner acting has in fact no authority to act for the firm in the matter, unless the person with whom he is dealing knows he has no authority, or does not know or believe him to be a partner.

Edmund v. Bushell and Jones

Jones was employed Bushell as the manager of his business in London under the name of “Bushell & Co.”Jones forbade Bushell from drawing and accepting bills of exchange. However, Bushell breached this prohibition in accepting some bills and Jones was sued upon one of them by the plaintiff. Court held that Jones was liable. This is because neither the plaintiff nor any previous holder of the bill knew that Bushell was the agent of Jones

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.

Sentance v Hawley

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. The court held that 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. This is created when a person is entrusted with another’s property and it becomes necessary 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 three condition whereby it may be created if the conditions are fulfilled. There 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.

In Prager v Blatspiel. Stamp & Heacock Ltd

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. The court held that 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

Ordinarily, a person is not bound by a contract made on his behalf without his Authority. But if a person, by his words and conduct, allows a third party to believe X is his agent, when X is not and the third party relies on it, he will be estoppels from denying the existence of X’s authority.

Mordaunt Bros v British Oil and Cake Mills Lt

The defendants sold oil to certain merchants. The merchants sold a portion of this oil to the Plaintiffs. Merchants give the delivery orders, address to defendants and directing the defendants to deliver the oil to the plaintiffs. While the merchants were punctual in their payments to defendants, the defendants regularly delivered oil to the Plaintiffs or their sub-purchasers. The merchants fell into arrear with their payments, and the defendants, claiming to exercise their right of lien as unpaid sellers, refused to make any further deliveries against the merchants’ delivery orders. The plaintiffs claimed a declaration that they were entitled to delivery of the goods. Based this claim, defendants were estopped from denying that they had the oil in their hands and to answer the delivery orders. The court held that the plaintiffs had failed to prove facts sufficient to establish a case of estoppels. This showed that plaintiffs regularly made the advances or purchases before making any inquiries as to whether the delivery orders would be executed, and had not, therefore, altered their position on the faith of any answers to such inquiries.

Agents and principals have their own duties to arise an agency. With the reference Contract Act 1950 Section 168, agents are not allowed to make any secret profit out of the performance of his duty. Secret profit is not restricted to money but it may include anything of value, for example, an interest-free loan, a club membership and etc. An agent who has made secret profit is liable to account to the principal for such profit. For the statement above, the agent has used the property of principal to make profit or benefit for himself, the agent deals on his own account in the business of agency, without first obtaining the consent of his principal and acquantining him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction or contract. The agent should not make a secret profit in his own account. The statement stated that the agent gains the unjust benefit by use of principal’ property, the principle may:

Repudiate the contract if it is disadvantageous to him

Recover the amount of secret profit from the agent

Refuse to pay the commission or remuneration to the agent

Dismiss the agent for breach of duty

Sue the agent and third party giving the bribe, for damages for any loss he

may have sustained through entering into the contract.

But, if the principal knows about the secret profit and consent to it, the agent is entitled to keep the profit and is not liable for the transaction.

In the Boardman v. Phipps case, Mr. Boardman was a solicitor of a family trust. The trust assets include 27% holding in a company, Boardman was concerned about the accounts of a company and required to protect the shareholding. He and his beneficiary, Tom Phipps, went to a shareholders’ general meeting of the company. They suggested to a trustee which is Mr. Fox that it would be desirable to acquire a majority shareholding, but Mr. Fox said it was completely out of the question for the trustee to do. After that, Boardman and Phipps decided to purchase the shares but they did not fully informed consent of all the beneficiaries. By capitalizing some of the assets, the company made a distribution of capital without reducing the values of the shares. The trust benefited by distribution for £47,000, while Boardman and Phipps made £75,000. Then, John Phipps, another beneficiary, sue for their profits. The court held that Boardman was liable to pay for his breach of the duty of loyalty, but he could be paid for his services.

In 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.