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Definition of Agency
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An agent has authority to act on behalf of another (the principal) to affect the legal position of the principal and a third party and does not need contractual capacity. Agents can be employees of the principal or independent contractors supplying specialist skills; companies may appoint other companies as their agents with responsibility for a particular market.
There is a difference between the legal and the commercial use of the term and many cases where the term ‘agent’ or ‘agency’ is used are not true agency. Thus car dealers may be described as being a manufacturer’s agents but they sell cars as principals, and a buyer has no rights against the manufacturer arising simply out of the purchase contract. Similarly, the granting of a ‘sole agency’ for products is not a strictly an agency agreement since it prevents the manufacturer from selling the goods personally, which is not true in a genuine agency agreement. Estate agents are not normally agents in the legal sense since they have no authority to contract regarding properties which they are instructed to sell.
Types of Agent
There are four types of agent. Special agents have authority on specific occasions or for a specific purpose, such as signing cheques. The principal is only bound where the agent has actual authority. General agents have authority to act within certain limits. The best example is a general partner in a firm who is a general agent and can bind the firm and the other partners in contracts in the ordinary course of the business. The principal can be bound by acts within the usual authority of the agent. Universal agents have unlimited authority to act for the principal. Del credere agents, in return for a higher commission, are primarily responsible for payment in respect of contracts negotiated on behalf of the principal. The best example is an advertising agency.
The Authority of the Agent
The agent must have authority which can arise in the following ways: (i) prior consent of the principal; (ii) subsequent consent of the principal – ratification; (iii) operation of law – agency of necessity; (iv) the doctrine of apparent authority.
By conscent of the principal
Normally the principal will authorize the agent to act on his behalf in advance of any exercise of the agent’s authority. Authority can be verbal, in writing or by deed where the agent is required to contract on behalf of the principal by deed, when the agent will be the donee of a power of attorney and subject to the Powers of Attorney Act 1971. Generally there is no distinction between verbal and written authority except for specific occasions when written authority is required by the law. The agent can bind the principal in contracts within his actual authority. If he acts beyond his actual authority or without authority then the principal cannot be bound unless he adopts or ratifies the transaction. If he refuses to ratify the transaction the agent will be liable for damages for breach of warranty of authority to the third party. Even where the agent has specific authority to bind his principal, he/she may also have apparent authority and may be able to bind his principal beyond his actual authority.
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Ratification
Where an agent acts without authority or beyond his authority, the principal may choose to adopt the contract by ratification. Ratification is only possible subject to certain conditions: if these are not complied with then the ratification will be ineffective. The conditions are as follows:
(i) The principal must have been in existence when the contract was negotiated on his behalf. Registered companies cannot ratify contracts negotiated on their behalf before their incorporation.
(ii) The agent must contract as such and name or identify the principal. In Keighley, Maxtead v. Durant [1901] the agent purchased wheat at a higher price than authorised but without revealing that he was acting as an agent. The principal purported to ratify the contract but later refused to accept delivery. The House of Lords held that he could not be liable for damages for breach of contract.
(iii) The principal cannot ratify a void contract or a forgery.
(iv) The principal must have capacity to contract both at the time the contract was negotiated and at ratification.
(v) The principal must be aware of all material facts relating to the contract. This is the general rule but a principal may ratify the acts of his agent without knowing of them, Fitzmaurice v. Bayley (1856).
(vi) Ratification must be of the whole contract.
(vii) Ratification must be subsequent, within a reasonable time and before the time fixed for performance of the contract.
Ratification is retrospective excluding: contracts of insurance, except for marine insurance, and where it would cause excessive hardship to third parties. Ratification can be express or by implication and there are no strict formal requirements except that, where the agent has contracted by deed, the ratification must also be by deed. Ratification will in many cases arise from conduct of the principal and it is sometimes difficult to identify whether an act of ratification has taken place. Thus in Forman & Co. Proprietary, Ltd v. The Ship Liddesdale [1900] a shipowner’s agent ordered extra repairs to be done to a ship beyond the scope of his authority. The shipowner later took the ship back and sold it. It was argued that the act of taking back the ship constituted ratification but the court rejected this argument saying that the shipowner had little option but to take the ship back and that ratification required some positive unequivocal act. However in other cases the court has accepted that, where an agent acted beyond his autority in buying goods and where the principal objected but later sold some of the goods, this amounted to ratification.
Where an agent accepts an offer on behalf of his principal ‘subject to ratification’, the acceptance is a legal nullity until ratification and if the offer is revoked before ratification there is no contract: Watson v. Swann (1862).
Authority by operation of the law: agency of necessity
Agency of necessity arises where the court recognises a person as having the authority of an agent to bind another person. This is subject to the following conditions:
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(i) A person must have responsibility for the property of another under a pre-existing contract.
(ii) There must be some emergency which arises in connection with the property of that person.
(iii) The person charged with responsibility for the property must be unable to get instructions from the owner of the property.
Questions.
1. What are the four types of agent?
2. What authority does the agent have?
3. In what way can the agent’s authority arise?
4. In what form can the consent of the principal be given?
5. On what conditions is ratification possible?
6. To what conditions is agency of necessity subject?
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