To talk about the contract of agency, firstly the definitions of contract and agency are requited. According to Gloag (W.Green, 1929), 'contract is an agreement which creates or is intended to create a legal obligation between the parties to it.' And it's a really important part in the business, commonly known as legal lynchpin of business activities such as provision goods and services (Gordon, G. 2011).
Meanwhile, same capacity rules apply in the law of agency as with other contract. Agency is known as the relationship between the business and someone else who help them to deal with their business arrangements with others. From what Mclaren said, ‘ agency is a bilateral, onerous, consensual contrace whereby one party, the principal, authorizes another, the agent, to execute business on his behalf.’(Mclaren, Y. 2013). In short, agency is where an agent acts for a principal person and convey his or her will in the course of business.
It’s noteworthy to point out that, there are three parts included in an agency relationship, principal, agent and third party. Furthermore, agency is a contractual relationship where it is key to note that both parties to contract of agency must have legal capacity (and must also exist). Therefore, the contract of agency constituted five main features showing below which will be discussed in turns:
1. Agency relationship created by express appointment 2. Agency relationship created by implied appointment 3. Agency relationship created by ratification 4. Agency relationship created by necessity 5. Agency relationship created by holding out
This relationship is also known as del credere agency. Agency created by express appointment. From the word 'express', is easy to tell that there must have been a deliberate and conscious act to lead to the appointment of a person as an agent. The contract of agency is common to other contracts, where one can expressly create an agency in writing or orally. There are quite a few express written appointment examples, such as powers of attorney, partnership agreements and any mandates.
Also it is noteworthy to point out that under the Commercial Agents (Council Directive) Regulations 1993,Regulation 131,commercial agents and principals are entitled to obtain from each other a statement of the terms on which they will do business together, so both agent and principal are required to sign on the written document with the terms of agency arrangement in a commercial agency relationship. (Doing Business in Scotland 2010)
According to Cross, 'Agency may simply come about by virtue of the agent acting on behalf of the principal and with the principal's agreement' (Cross. S. 2011)2. Mostly, agency relationship is created in an informal way such as orally, and via the use of modern technology such as through emails or text messages. All of which are express appointments.
Agency created by implication This occurs when the principal did not give any express appointment for an agent, but the agency relationship still exists. This may happen because there are actions which shows the partnership. S.5 of the Partnership Act 18903 says that every partner is 'deemed or implied' to be an agent of the firm and the other partners (Cross. S. 2011). 4For example, high-level employees in the business (e.g. management) are usually seen as agent for their organisations. The case relative to this will be case number 15 under Agency cases, Watteau v Fenwick 5, where the manager of the public house was held to be an agent. Moreover, a company director is also an implied agent of the business. It should be noted that the agency agreement can also apply when it is implied by conduct.
Agency by ratification A principal may retrospectively authorise the act of an agent. He might be unaware that the agent had acted for him, but on becoming aware he may retrospectively authorise the act by a posiver action or his conduct. There are six requirements for ratification:
1. The agent must act as an agent and it must have been disclosed to the third party that this was the case. For example, in Keighley Maxted & Co v Durant 6, the agent (Roberts) did not disclose to the third party that he is buying wheat for someone else and himself. 2. The principal must exist by the time the agent acts. To discuss this, Kelner v Baxter7 would be appropriate. There were no firms (later registered) at the time the contract was built, so the three directors had acted with no existing principal 3. The principal must have the required legal capacity. 4. The principal needs to be aware of all the relevant material facts behind the agent's actions (Corss. S. 2011)8 5. There is a limited period of time for principal to take place into for the ratification. Such as in Goodall v Bilsland9 , there was a 10 days allowance for the solicitor to bring the appeal. 6. The principal needs to aware of material facts.
The relative case where a principal did not exist will be case number 46, Patmore & Co v Cannon & Co 10. Patmore did not breach the contract because Cannon leaves the business 5 years before contract ends. Therefore, the agency agreement does not exist anymore.
Agency of necessity Agency of necessity must be genuine. There are two parts to it. Firstly, communication must be impossible. This occurs in a situation where there is an emergency and an agency relationship is created for carrying out actions for a principal without receiving instructions to do so. In Scottish law, it is referred to as arising from ‘negotiorum gestio’ (‘management of affairs’)11 (Cross. S. 2011).
This is most likely to occur during extreme weather conditions or during a war. Nowadays, it is uncommon and unlikely that someone could not be contacted if an emergency situation arises as the modern instantaneous communication such as mobile phones, internet etc. exists. Secondly, anyone acting as an agent of necessity should do so in the interests of the principal they are helping and in good faith.
The case of Great Northern Railway Co v Swaffield 12(1974) LR 9 Exch 132 would illustrate an agency of necessity. Swaffield(principal) was held to pay the livery costs for his horse who was kept in the stables by the railway company(agent), as it was impossible to contact him and impossible to keep the horse at the railway station for long, it was therefore necessary to put his horse in the stables.
Agency created by holding out Agency relationship created by holding out requires three conditions. Firstly there must be representation by a principal. It means that a principal knows and allows a person to be his agent and represent himself as an agent without any roles. Secondly, there has to be reliance by a third party. Lastly, is also important that alterative of third party's position. The case illustrating these theories would be Freeman & Lockyer v Buckhurst Park Properties Ltd13 (1964) 2 QB 480. The firm had held out the held of the director so he has authority to act. Therefore he as a director had power to bind the company.
There is a relationship called Del creder agency, it occurs when a third party pay for guarantee the commercial agent if it cant not pay the principal. Therefore the agent bears the risk of their transaction.
In conclusion, there are a whole variety of ways of creating agency contract. Mainly by express or implied appointment, ratification, necessity and holding out. All five ways under same contract capacity rules as others. And different terms and conditions apply in each instance. Both agent and principal work under required conditions.
