ABE Principles of Business Law 2008-1

			285
	Study Unit 12
	Law of Agency 2: Authority, Liability and Termination
	Contents		Page
	A.	Authority of Agents	287
		Definition of Terms	287
		Actual Authority	287
		Apparent Authority (Sometimes Called Agency by Estoppel)	289
		Presumed Authority	290
	B.	Delegation of Authority	290
		General Rules	290
		Position of the Sub-agent	291
	C. Rights and Liabilities of the Principal to Third Parties		291
		In Respect of Contracts	291
		Undisclosed Principal	292
		In Respect of Money Paid or Received	293
	D. Liability of the Principal for the Wrongs of the Agent		293
		Fraud	293
		Torts Committed by the Agent	293
		Money Misappropriated by the Agent	294
		Notice Given to the Agent	294
		Bribery of the Agent	294
	E. Relations between Agents and Third Parties		294
		If the Agent Contracts Personally	295
		Contracts under Seal and other Written Contracts	296
		Non-existent Principals	296
		Where the Agent is really the Principal	297
		Breach of Warranty of Authority	297
		Liability of Agents in Respect of Money	298
		Liability of Agents for Wrongs they Commit on the Principal's Behalf	298

(Continued over)

©ABE and RRC

286 Law of Agency 2: Authority, Liability and Termination

F.	Termination of Agency	298
	By Revoking the Agent's Authority	298
	Irrevocable Agency	300
	Effect of Revocation on Third Parties	301

©ABE and RRC

Law of Agency 2: Authority, Liability and Termination 287

A. AUTHORITY OF AGENTS

In the previous study unit, we referred to the "authority" of agents. There are a number of different types of authority, derived from different sources, which an agent may possess. It is necessary to study these in some detail – but first, let us define them.

Definition of Terms

Actual Authority

This is the actual authority given by the principal to the agent. It may be express or implied – that is, given by express words, or implied from conduct or the circumstances of the case.

Apparent Authority, or Ostensible Authority

These are two terms for the same thing. In this study unit, we shall always refer to "apparent" authority – but remember that, if you see the term "ostensible" authority used elsewhere, it is the same thing. Apparent authority is the authority the agent has as it appears to others.

An agent can plainly appear to have a certain authority which he/she does not actually possess.

Incidental Authority

The authority given to an agent will normally be in respect of his/her primary tasks. However, it is implied that he/she also has authority to do all such things as are necessarily incidental to the performance of the duties given by his/her actual authority.

Usual Authority

Agents in particular trades or professions usually carry out certain set duties (e.g. insurance brokers, stockbrokers, solicitors). Hence, if a person in one of these trades or professions is employed in respect of that business as an agent, then he/she is presumed to have the authority to do whatever is usually done by agents in that particular business.

Customary Authority

This is similar to usual authority but it is applied to the customs or usages of a particular place, as opposed to a particular business.

Presumed Authority

Certain relationships inevitably involve one person acting as agent for another (e.g. husband and wife). In such cases, the agent is presumed to have a certain authority.

Actual Authority

(a)Express Actual Authority

The capacity of an agent to act is the same as the capacity of his/her principal. Subject to exceptions already mentioned, anything the principal can lawfully do can be done for him/her by an agent. Hence, the express actual authority of an agent can be co-extensive with the powers of the principal.

Express actual authority can be conferred by deed, in writing, or orally. Authority by deed is, usually, called "a power of attorney" – and, as such, it is a formal document and construed more strictly than other types of express authority.

©ABE and RRC

288Law of Agency 2: Authority, Liability and Termination

Authority granted by virtue of a power of attorney is only such as is actually given by the wording of the power, by necessary implication, and it is necessarily incidental for effective execution. Strict tenets of construction should be used.

The construction of the authority given by a document not under seal, or given orally, is much more liberal, and it is designed to give effect to the object of the agency, and to the ordinary usages of business (Poole v. Leask (1860)).

However, if the express authority given to an agent is ambiguous or uncertain, then any act he/she does in good faith which can be attributed to any of the possible meanings of the authority will be deemed to have been properly authorised. This is so even though the meaning the agent ascribed to the authority was, in fact, different from that intended by the principal (Ireland v. Livingston (1872)). This case was, of course, decided before the days of telephone and e-mail; hence, it is suggested that, nowadays, if an authority was ambiguous on the face of it (as opposed to patently ambiguous), the agent would be under a duty to query the matter, if possible.

The facts in Ireland v. Livingston (1872) were that a principal in England instructed his agent in Mauritius to buy and ship 500 tons of sugar, "50 tons more or less of no moment, if it enabled him to secure a suitable vessel". The principal stated that he would prefer shipment "to London, Liverpool or the Clyde, but if not possible to Liverpool or London". The agent shipped 400 tons on a vessel direct to London, which was not amenable to further orders.

HELD: It was doubtful what the instructions meant, and the agent's action was, therefore, within the scope of his authority.

(b)Implied Actual Authority

Implied actual authority is whatever authority is necessary or incidental to the effective carrying-out of the agency in the usual way. It, therefore, includes "incidental", "usual" and "customary" authority. However, it is more – it is also the authority necessary to give business efficiency to the agency contract.

This does not mean that an agent has discretion to contravene the express instructions of the principal if he/she considers them ill-advised or impractical – it does mean that additional ancillary powers will be implied if they are not expressly given. For instance, consider the following points.

An agent who has express authority to receive payment or money has, prima facie, implied authority to receive it other than in cash (e.g. by cheque).

A managing agent has implied authority to do all those things necessary or usual effectively to manage.

A professional agent has implied authority to do all those things which are usual in the profession or trade – but this does not extend to unusual things.

Every agent has implied authority to act in accordance with the customs or usages of the trade or market in which he/she operates, and with the usual and prevailing commercial customs.

However, this implied authority (usual authority) is subject to the rules for the implication of all customs – namely, that they must be reasonable, notorious (i.e. well-known), certain, and not unlawful. The fact that the principal was not aware of the custom does not affect the issue. If it is shown that such authority is customary in the particular business or place, and such custom fulfils the necessary criteria, then it will be implied as part of the authority of the agent. Some customs are, in fact, so well known that judicial notice is taken of them.

©ABE and RRC

Law of Agency 2: Authority, Liability and Termination 289

This means that their existence and application do not have to be proved by the person asserting them.

In certain cases, authority will be implied from a course of dealing between principal and agent. This can occur where an agent has enjoyed a particular authority which has not been expressly granted, and the principal has not over a period of time, either objected to or queried it. In either case, which period of time is necessary to establish a course of dealing will depend on the circumstances.

Apparent Authority (Sometimes Called Agency by Estoppel)

This type of authority occurs either where the principal has led third parties to believe that his/her agent has a particular authority (called "holding out"), or where the agent has assumed a certain authority to the principal's knowledge, or where the principal becomes aware that the agent has assumed this authority but takes no steps to correct the error or inform the third party of the fact that the agent does not possess such authority. If this situation develops without correction, so that the third party reasonably assumes the agent has the relevant authority, then the principal will be bound to the same extent as if the agent were properly authorised.

Consider the following points:

The principal places restrictions on the agent's "usual" authority. If the agent then disobeys the instruction, he/she is liable to the principal but the principal will still be liable to the third party who deals with the agent in good faith and without notice of the restriction. If there are no suspicious circumstances the third party can treat the contract as valid.

In Waugh v. Clifford & Sons (1982), solicitors acting for a firm of builders in a dispute concerning property were offered a compromise involving an independent valuer. They sought their client's instructions but the instruction not to accept the compromise did not reach the partner concerned in time.

HELD: The builder was bound by the compromise. It was within the authority of a solicitor to agree to such a compromise and the other side could rely on the solicitor's apparent (i.e. apparent) powers.

It is essential that it is the principal who "holds out" the agent as having authority. The third party cannot enforce a statement by the agent that he/she has authority when there has been no such "holding out".

In Armagas Ltd v. Mundogas S A (the "Ocean Frost") (1986) an agent, claiming to act on behalf of his principal, negotiated an unusual three-year charter of a ship. The contract was clearly outside the scope of the agent's usual powers, and the principal had not held out the agent as having authority to negotiate on his behalf. Nevertheless, the third party accepted the agent's statement that he had authority. It was held that the principal was not bound by the contract. Since there had been no holding out by the principal there was no apparent authority.

It seems that the apparent authority given by the principal to the agent can continue after the agent has left the principal's employment, provided, of course, that the third party had no actual or constructive notice of the termination of authority.

In Discount Kitchens Ltd v. Crawford (1988) a representative of a company gave C plans for a fitted kitchen. When he returned some months later he did not disclose that he now worked for Discount Kitchens (D). However, the order form which C signed named D as the supplier. The work was defective and C sued both D and the other company (the original employers) on the basis that the representative had apparent authority to act on D's behalf. It was held that although such authority could

©ABE and RRC

290Law of Agency 2: Authority, Liability and Termination

continue after an agent had ceased to be employed by the principal, this could not apply where the third party had actual or constructive notice of the termination of the agent's employment. Since the order form was in the name of D, C should have realised that the representative had no further authority from the original employer and the alleged estoppel therefore failed.

If the principal is undisclosed, any restrictions on the agent's rights will not affect a third party who has been allowed to believe that he is dealing solely with the agent and who therefore cannot know of the restraints.

In Watteau v. Fenwick (1893) Fenwick, the owner of a hotel, allowed the former owner to remain as manager and the manager's name appeared as licensee. The manager ordered cigars on credit from Watteau. This order was in breach of specific instructions from Fenwick but there was nothing to make Watteau suspect this. It was held that Fenwick was liable for the price.

Presumed Authority

Certain relationships are such that the agency of one party has been presumed to include a certain authority. It does not arise in commercial affairs but we must mention it briefly, for the sake of completeness.

(a)Husband and Wife

While husband and wife were living together and maintained a household, it was presumed that the wife had authority to pledge her husband's credit for necessaries suitable to the style of life which they were leading. This presumption could be rebutted if the husband had forbidden her to pledge his credit (and notified the relevant tradespeople of this fact, or advertised it in a local newspaper); or, if she was already well supplied with such necessaries; or the husband had given her a sufficient allowance to cover such expenditure.

In Miss Gray Ltd v. Cathcart (1922), a wife was supplied with clothes to the value of £215, and the husband refused to pay for them. On his being sued by the tradesman, the husband proved that he paid his wife £960 a year, as an allowance. It was held that the husband was not liable.

Note that, in Ryan v. Sams (1848), it was held that a housekeeper is in a similar position to a wife, so far as the question of agency is concerned. It is the fact of cohabitation which raises the presumption of agency.

(b)Parent and Child

But there is no presumption that a child has authority to pledge the credit of the parents, even for the supply of necessaries.

You will recall the special rules regarding minors in the law of contract, and that contracts for necessaries are valid.

B. DELEGATION OF AUTHORITY

General Rules

The general rule is that an agent cannot, without the express authority of his principal, delegate his authority to another, or appoint a sub-agent to act for him in the whole or in part of his duties. The Latin maxim is "delegatus non potest delegare": someone to whom something is delegated cannot sub-delegate.

The reason for this rule is that the appointment of an agent involves a principal in liability and risk – that is the purpose of it. An agent makes contracts or does acts on the principal's

©ABE and RRC

Law of Agency 2: Authority, Liability and Termination 291

behalf which bind the principal. Hence, the principal is entitled to expect (and rely on the fact) that the agent will not pass the task(s) over to someone else, probably unknown to the principal.

If an agent does delegate without authority, or appoint a sub-agent likewise, the principal is not bound by the contract, and the agent is personally liable upon it.

There are, however, five partial exceptions to this otherwise strict rule.

The first and obvious one is that the principal is always at liberty expressly to authorise the agent to delegate or appoint a sub-agent.

If the task to be delegated is of a "ministerial" character – that is, one of merely carrying out an instruction in a routine fashion, and not involving any discretion or any confidence. For example, an agent who sent out manuscripts to be typed by a secretarial agency could not be deemed to be delegating or appointing a sub-agent.

In certain trades, businesses or professions, the use of sub-agents is not only customary but also necessary. Delegation in the course of such a business, etc. would not breach the rule of "delegatus non potest delegare". For instance, in the shipping and forwarding business, an agent in the country of despatch will almost invariably employ a sub-agent in the country of destination of the goods.

If, during the course of agency, unforeseen circumstances arise, it may become essential for the agent to delegate.

Power to delegate or to appoint a sub-agent will be inferred if the principal was aware, at the time of the agency contract, of the agent's intention to appoint a sub-agent, or where the conduct of the parties has been such as to show an authority or an intention to do so.

Position of the Sub-agent

There is no privity of contract between the principal and a sub-agent. Hence, if the principal has cause to take proceedings against a sub-agent, he/she cannot do so directly in contract but must sue the agent, who, in turn, will join the sub-agent in the action.

However, if the principal has either expressly or by implication authorised the appointment of a sub-agent (and, perhaps, also if appointment is customary) the sub-agent will owe the principal a "duty of care", so as to enable the principal to sue direct in tort for negligence. In

Junior Books Ltd v. Veitchi Co. Ltd (1982), the House of Lords held that a "nominated" sub-contractor in a building contract owed the building owner a duty of care falling only just short of a contractual relationship (a "nominated" sub-contractor is one named and approved by the employer). It is suggested that an authorised sub-agent would fall into this category.

A sub-agent or delegated agent is, of course, the agent of the agent. So, in this respect, the agent is the principal of the sub-agent or delegatee. As between themselves, the normal agency rules apply. By the same token, provided the real principal has authorised or ratified the appointment of the sub-agent or delegatee, she will, in effect, be bound by that person's acts in the same way as she is bound by the acts of her agent.

C.RIGHTS AND LIABILITIES OF THE PRINCIPAL TO THIRD PARTIES

In Respect of Contracts

As we have said before, a contract made by an agent on behalf of a named principal is the contract of the principal. Hence, he/she can both sue and be sued in respect of it. The agent assumes no personal liability on the contract.

©ABE and RRC

292 Law of Agency 2: Authority, Liability and Termination

That is the rule where both principal and agent are English. However, where an agent in England makes a contract on behalf of a foreign principal, the situation may be different. Until fairly recently, there was a very strong presumption in such a case that the agent had no authority to bind the principal and was, in fact, assuming personal liability in respect of the contract.

However, in Teheran-Europe Co. Ltd v. S T Belton (Tractors) Ltd (1968), the Court of Appeal recognised that even the law merchant can change, and that the presumption that the agent was contracting personally where the principal was a foreigner no longer applied. It was a factor to be considered, but no more.

However, normally, if an agent does some act which is beyond the scope of his/her actual or apparent authority, the principal will not be bound by that act. Furthermore, if the third party has notice of the actual authority of the agent, then the apparent authority of the agent will not be relevant. The principal will not be bound by any acts in excess of the agent's actual authority.

Undisclosed Principal

It sometimes happens that an agent will negotiate or contract with a third party, disclosing that he is an agent but not stating the name of his principal. He may also not even disclose the fact that he is acting as an agent at all.

Plainly, this must affect the situation. The third party cannot be expected to be bound by a contract if he does not know with whom he is contracting; even more so if he does not realise that the person with whom he is dealing is not, in fact, the principal at all but acting for some unknown principal.

In such cases the rules are as follows:

An undisclosed principal can sue or be sued in respect of any contract made on his behalf by his agent. So, as far as the principal is concerned, he can act in the normal way as if his name has been properly disclosed.

Likewise, he can sue or be sued in respect of money paid or received on his behalf by his agent (provided, that is, the agent was acting within the scope of his actual authority).

The undisclosed principal can also intervene in any contract made by his agent, and (for example) take the benefit of it for himself. The exception to this rule is that, if the personality of the agent is of prime importance, then the principal cannot himself intervene.

In Said v. Butt (1920), an agent obtained tickets for the first night of a show at a theatre, without disclosing that he was acting as agent.

HELD: The real principal could not intervene to take the benefit of the contract for himself. The personality of the contracting party was an important consideration in the making of the particular contract.

The real principal can neither intervene, nor sue or be sued, if an express or implied term of the contract is inconsistent with such a right. In Humble v. Hunter (1848), an agent executed a charter-party for a ship, and was described in the contract as the owner of the vessel. He was, in fact, only an agent for the real owner.

HELD: The real owner could not give evidence to show that the agent had contracted on his behalf in order that he might sue in respect of the contract, because this would be inconsistent with the contractual term that the agent was the owner.

The courts now seem to be moving away from the principle in this case and will make the agent personally liable only where he/she has contractually warranted that he/she

©ABE and RRC

Law of Agency 2: Authority, Liability and Termination 293

was the only principal or the agent's personality was regarded by the third party as essential to the performance of the contract.

As far as the third party is concerned who has contracted with an agent for an undisclosed principal, or with a person who has not disclosed that she is acting as an agent, he can sue either the agent or (when he discovers the identity or existence of the principal) he can sue the principal.

The corollary of this is, of course, that the agent is herself personally liable on the contract. She has a right to be indemnified by the real principal – but if (say) the principal is insolvent, this right is not of much value!

However, although the third party can choose to sue either the agent personally or (when he discovers the identity) the principal, if he elects to sue the agent and gets judgment, then, if the judgment is not satisfied, he cannot, later, turn round and sue the principal (Priestley v. Fernie (1863)).

The fact that an undisclosed principal has, in fact, paid an agent in settlement of a debt owing to a third party does not discharge the undisclosed principal from liability if the agent does not pay the money over to the third party.

In Respect of Money Paid or Received

As stated above, payment by an undisclosed principal to his/her agent does not absolve him/her of liability to the third party. The same applies if the principal is disclosed. In respect of normal disclosed principals, the situation is not always what you would expect.

If a third party settles the debt he owes the principal by paying the agent, that third party will be discharged from liability only if the agent has actual (express or implied) or apparent authority to receive payment. Further, the third party has no right to set off against what he owes the principal sums that are owed to him by the agent (Fish v. Kempton (1849)).

D.LIABILITY OF THE PRINCIPAL FOR THE WRONGS OF THE AGENT

Fraud

Fraud by an agent while acting within the scope of his/her actual or apparent authority does not affect the liability of the principal. The principal is still bound by the act of the agent, even though the agent was acting fraudulently and to further his/her own interests. However, this rule does not apply unless the agent was actually authorised (whether expressly or by implication), or apparently authorised, to do the act in question. Nor does it, probably, apply if the principal is undisclosed.

Hambro v. Burnand (1904)

B authorised A to underwrite insurance policies as his agent. Contrary to his authority, and in his own interest, A underwrote a guarantee policy in B's name. The underwriting of such policies was in the ordinary course of business for a Lloyd's underwriter – which A was.

HELD: B was bound by the policy, even though it was in fraud of him.

Torts Committed by the Agent

The liability of a principal for torts committed by an agent depends, to an extent, on the status of the agent.

If the agent is an employee of the principal, then the normal law of master and servant applies – this is, the employer is liable for damage or loss caused by the wrongful act of the

©ABE and RRC

294 Law of Agency 2: Authority, Liability and Termination

employee while acting in the course of his/her employment. This means that the employee must have been engaged in or about the service of the employer when the wrongful act was committed, and not operating strictly on his/her own account. Say, a person is driving a company car, and he has an accident through his own fault. If he was on the company's business when the accident occurred, the employer would be liable. If, on the other hand, he was driving his wife shopping at the weekend, using the company car, the employer would not be liable. In the latter case, the driver would not have been in the course of his employment. This is called vicarious liability.

In the case of all agents, whether they be servants or not, the principal will be liable for a wrongful act of the agent in the following instances.

If the act was either authorised or ratified by the principal. This is fairly obvious, and no more needs to be said about it.

If the wrongful act was done in the course of the business of the agency, and it was in connection with matters within the actual or apparent authority of the agent. In other words, if the tort was committed as part of or in connection with the agent's ordinary agency business, the principal will be liable. This applies even if the wrongful act was done for the benefit of the agent, and not the principal. In Colonial Mutual Life Assurance Society Ltd v. Producers' and Citizens' Co. of Australia Ltd (1931), an insurance company was held by the Australian High Court to be liable for defamation committed by its agent while soliciting business.

Money Misappropriated by the Agent

Frequently, agents, as part of their duties, receive money from third parties which is for the account of their principals. An estate agent acting for the vendor of a house will, for instance, receive a deposit paid by the purchaser. Or the agent may receive money from the principal, or from a third party, which is for the account of another party. In all these cases, should the agent, having received the money while acting within the scope of her authority, misapply or misappropriate it, the principal will be liable. He will be bound to make it good to the third party. The principal will, of course, have a right of action against the agent but the primary liability remains with him.

Notice Given to the Agent

A notice given to an agent within the scope of her actual or apparent authority is deemed to be notice duly given to the principal. So, if the agent fails to communicate the notice to her principal, the principal will still be liable as if he had actually received it.

Bribery of the Agent

This is one of the few instances where a principal is not liable for the act of his/her agent. Any contract made by an agent while under the influence of bribery is voidable by the principal. Furthermore, the person who bribed the agent is jointly and severally liable with the agent for any loss occasioned to the principal.

E. RELATIONS BETWEEN AGENTS AND THIRD PARTIES

The general rule is that where an agent makes a contract in her capacity as agent between her principal and a third party, the agent is not liable to the third party in respect of it. The contract an agent makes is the contract of the principal and, once made, the agent drops out of the transaction.

However, in a number of instances this will not apply.

©ABE and RRC